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Remembering Martin Luther King, Jr.

By January 16, 2012

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For Martin Luther King, Jr. Day I thought I would write a quick post about the Civil Rights Movement and its effect on the services afforded to poor urban communities by the financial industry including insurance and banking.

"Redlining" was a process used by financial institutions to exclude investment in particular sections of an urban area. Look at the picture - that is a redlined map of Philadelphia from the 30's as an example. Overwhelmingly, the excluded investment areas consisted of poorer white, immigrant, and African American neighborhoods. You wanted to build a business, a home, a daycare, or any business in a "redlined" neighborhood chances are that was not going to happen. Not because of your character, credit, or any other reasonable financial reason. Rather, because of a line on a map drawn, most often, because of the color of your neighbors.

That logic was not limited to the real estate market. Insurance companies, evidence overwhelmingly suggests, redlined and "reverse redlined." Meaning, certain coverages were excluded from certain neighborhoods while other (usually questionable) coverages were sold and marketed to such neighborhoods.

The Drum Major Instinct sermon, the issue of some controversy concerning the King Memorial, includes a great story by Dr. King where he tells of trying to do a little "converting" of white jail guards while he was in jail in Birmingham. He asked the guards "about where they lived, and how much they were earning." He told the guards they should be marching with him because it was only by prejudice that they did not realize that they were in the same economic boat as the civil rights marchers. Denied opportunity and fair pay by forces beyond their control.

It sounds a bit paranoid until you look at a map that was marked by someone, somewhere, and used as a tool of the trade to decide where capital would go and where insurance would be written.

Seven days after Dr. King's death, the Civil Rights Act of 1968 was signed into law. Title VIII of that law is commonly known as the Fair Housing Act and prevented redlining based on race and the Community Reinvestment Act a decade later did much to eliminate overt use of redlining and require unifom credit criteria.

Also in 1968, the Urban Property Insurance Protection and Reinsurance Act, started Fair Access to Insurance Requirements (FAIR) in response to the refusal of insurers to write policies in certain neighborhoods of several major U.S. cities. Specifically, urban riots in 1967 and 1968 led to the cancellation of policies and refusal to underwrite in certain areas considered "riot prone" after insurers and reinsurers suffered major riot related claims losses. Again, these were overwhelmingly African American neighborhoods. FAIR plans now exist in 32 states. Businesses and home owners can secure insurance through a FAIR plan where the private market will not support insurance.

Dr. King was present and prominent at President Johnson's signing of the 1964 Civil Rights Act. His continued activism and increased focus on economic gross inequlities affecting all Americans led to the 1968 Civil Rights Act. Building a business, working hard and taking a risk, garnering capital investment, and working to insure that investment is the basis of the American economy. And that possibility is just a little more fair and acheivable because of the Civil Rights Movement and Dr. King.

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