Redlining

What Does Redlining Mean?

Redlining is the practice of denying insurance policies or financial services to individuals based on their residence in a specific geographical area.

This practice is illegal in most states, and companies that engage in redlining may face punitive consequences.

Insuranceopedia Explains Redlining

Redlining derives its name from the practice of financial institutions drawing red lines on maps to indicate areas where they would refuse services. These areas were typically low-income communities or those with significant racial or ethnic minorities. Today, the term is used metaphorically to describe institutions that deny services based on a person’s community of residence.

Insurance companies that have engaged in redlining often did so due to higher premium default rates in certain locations. However, discriminating based on geographical location has been illegal since the mid-1970s.

Redlining specifically refers to denying insurance coverage based on the presumed characteristics of the people living in a certain area, such as assumptions about their financial responsibility or likelihood of paying premiums. It does not include the refusal to offer insurance products due to geological risks. For instance, insurers that decline to issue homeowner’s insurance in areas prone to flooding or wildfires are practicing a legal and common form of underwriting.