Inner-City Insurance Bias Cited : Legislation: John Garamendi says reforms are needed to prevent discrimination. But the industry denies that there is a problem.

Citing concerns magnified by the Los Angeles riots, California Insurance Commissioner John Garamendi on Tuesday called for national initiatives to prevent insurance companies from discriminating against inner-city areas such as southern Los Angeles.

“The civil disturbances in Los Angeles highlighted an ongoing problem,” Garamendi said at a news conference as the National Assn. of Insurance Commissioners met here. “If Los Angeles is to be rebuilt . . . if other cities across the nation are to have strong economic activity in their inner cities, insurance will have to be available.”

Garamendi and several consumer advocates recommended that Congress re-enact a federal riot reinsurance program that was repealed in the face of industry opposition in 1980 and adopt provisions in federal urban enterprise zone legislation to guarantee access to insurance.

And Garamendi said the association, which represents state insurance commissioners nationwide, agreed this week to conduct a study of the availability and pricing of insurance and post-riot reinsurance in low-income urban areas.

He was joined at the news conference by Bob Hunter, president of the National Insurance Consumers Organization, Texas Public Insurance Counsel Amy Johnson and Jason Adkins of the Boston-based Center for Insurance Research.

The American Insurance Assn. said Tuesday that--contrary to concerns expressed by Garamendi and others--the enormous post-riot insurance claims demonstrate that firms have not abandoned the inner city.

The association, which represents 240 property-casualty companies, also said the industry supports strict enforcement of state laws that already prohibit redlining, a term referring to the practice of refusing to sell insurance in high-risk areas.

Garamendi said his office has seen largely anecdotal indications of possible discrimination, under-insurance and unlicensed insurance firms in southern Los Angeles. He said, for example, that just two storefront insurance offices existed in burned-out southern Los Angeles, while there were “a plethora” of such businesses in surrounding communities.

“We discovered that insurance was either unavailable or unaffordable for many residents of the central city,” said Garamendi, who became the first elected California insurance commissioner in 1990. “Companies that do substantial business in the city also report that their reinsurance costs may be skyrocketing as a result of their losses. Before this becomes a national phenomenon, state and federal authorities must step in.”

Insurance claims from the Los Angeles riots are estimated to be $775 million, making the disturbances the costliest civil unrest in American history, insurance officials said. They have received more than 6,000 claims, primarily on commercial property.

In addition, the California FAIR Plan, an industry pool of fire coverage for homes and businesses that cannot find insurance elsewhere, has received 554 riot-related claims for $45 million, FAIR spokesman Mike Harris said.

“The fact that the insurance industry estimates that it will pay out in excess of $775 million in losses as a result of the Los Angeles disturbances would seem to indicate that insurers were actively and competitively writing coverage in the area,” the American Insurance Assn. said Tuesday in a news release. “The industry did not turn its back on Los Angeles in the aftermath of the Watts riots in 1965.”

But Garamendi maintained that the initial claim figures may not tell the whole story. The state Department of Insurance is doing a survey of losses to the uninsured and under-insured and to unlicensed insurers who sell coverage in California but fail to make good on claims.

At the same time, Garamendi said it is vital to provide federal reinsurance to allow insurance companies to reduce their exposure for losses incurred when a catastrophe leads to an extraordinary number of claims.

Under the federal reinsurance plan adopted following riots in Watts and elsewhere in the 1960s, participating states had to create FAIR plans and agree to fund part of the reinsurance coverage. Twenty-five states participated under FAIR. California continued its plan after the federal law was repealed more than a decade ago.

Nonetheless, a Garamendi spokesman said, “Without a federal reinsurance program in effect, even with the FAIR plan, it makes it more difficult and more costly to get insurance” because insurance companies underwriting the plan are apt to raise their premiums amid fear of further urban unrest.