Historic Redlining and Contemporary Climate Risks Fuel Home Insurance Exclusion

The increasing impact of climate change is leading to higher home insurance premiums and growing rates of underinsurance and uninsured homeowners, particularly affecting communities of color. From 2021 to 2024, insurance premiums rose in 95% of ZIP codes, with minority groups experiencing disproportionately higher uninsured rates compared to white homeowners. This modern insurance crisis echoes historical patterns of discriminatory underwriting practices, notably the redlining of the 1960s where insurance companies excluded predominantly Black urban neighborhoods from coverage based on racial stereotyping and perceived risk. During the 1960s, white flight to suburban areas prompted insurers to withdraw services from urban neighborhoods, intensifying insurance access disparities. The National Advisory Commission on Civil Disorders identified racial discrimination as a primary driver of insurance exclusion, leading Congress to authorize Fair Access to Insurance Requirements (FAIR) plans and pass the Fair Housing Act of 1968. These measures aimed to ensure equitable access to insurance and prohibit race-based discrimination, yet lawsuits and settlements indicate ongoing discriminatory practices in underwriting. Currently, insurers employ advanced algorithms and artificial intelligence tools that incorporate multiple data points, including climate risk, credit scores, and property features, to price insurance policies. While these technologies are positioned as innovative, they perpetuate disproportionate financial burdens on minority homeowners due to proxy factors like credit scoring. The lack of transparency in algorithmic decision-making hinders efforts to detect and challenge unfair underwriting practices. A recent development termed "bluelining" describes insurance companies withdrawing services from communities identified as high environmental risk areas, often overlapping with historically redlined neighborhoods. These communities face compounded vulnerabilities, including increased heat exposure and climate hazards, resulting from longstanding infrastructural neglect. The consequences of insurance exclusion extend beyond homeowners, affecting mortgage availability, property values, and neighborhood investment. Federal Reserve officials have highlighted the risk of certain regions becoming financially inaccessible over time due to declining insurance and banking services. To mitigate these emerging risks, policymakers are encouraged to adopt strategies drawn from historic anti-redlining efforts in banking and housing. Proposed reforms emphasize regulatory oversight, transparency, and accountability in insurance underwriting to address inequities and support climate-vulnerable communities effectively.