The U.S. Department of Housing and Urban Development (HUD) issued a new rule in February that would allow the use of the disparate impact theory to prove housing discrimination, and several insurance groups have sued the agency to overturn the rule. Under the rule, regulators would be able to charge discrimination by showing that some racial or ethnic groups received fewer housing loans than other groups, without the need to show intent or even prove racial bias in a specific case. In effect, this Wall Street Journal editorial says lenders and insurers would need to impose de facto racial quotas or risk costly lawsuits. The insurance groups say the new rule forces insurers to make race and ethnicity a higher priority than the "legitimate risk-related factors" that insurers typically use when insuring a home, such as a home's age, condition, location, and whether there is a smoke detector, among other factors. The lawsuit also indicates the rule "would require insurers to provide and price insurance in a manner that is wholly inconsistent with well-established principles of actuarial practice and applicable state insurance law," and that it runs contrary to the McCarran-Ferguson Act that ensures states have the primary role in insurance regulation. This editorial says the rule needs a court test, and insurers are less likely to settle as the disparate impact theory is likely to skew actuarial tables and make it difficult to calculate potential losses.
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