Updated: 29 February 2024

What Does Redlining Mean?

Redlining is the practice of refusing to approve insurance policies or financial services to people who live in or are from a certain geographical area.

This practice is considered illegal in most states, and companies engaged in redlining can face punitive consequences.

Insuranceopedia Explains Redlining

Redlining gets its name from financial institutions demarcating with red lines the areas on a map to whose residents they will decline services. The redlined areas were generally low income communities or communities with significant numbers of visible or racial minorities. The term is now applied metaphorically to institutions who deny services to individuals based on the communities they live in.

Insurance companies that participate or have participated in the practice of redlining do so in part because of the higher premium default rates in certain locations. Discriminating based on geographical location, however, has been illegal since the mid-1970s.

Redlining only includes the withholding of premiums based on the assumed characteristics of the people who inhabit the redlined area (that they are less likely to pay their premiums, for instance, or that they are deemed fiscally irresponsible). Redlining does not include the practice of withholding insurance products based on geological features of an area. Companies that refuse to issue homeowner's insurance in areas prone to flooding or wildfires, for example, are simply exercising a legal and commonplace form of underwriting.

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