Garamendi Moves to Fight Inner-City Redlining : Insurance: The proposal would rate firms on performance and offer rewards to those that excel.

State Insurance Commissioner John Garamendi on Thursday announced a proposal to fight redlining of inner-city areas by insurance companies through a system of financial incentives for those writing policies in the underserved neighborhoods.

For the first time, insurers would be required to report how many policies they write by location and the ethnic makeup of their management. The information would be used to identify areas being redlined and to rate the performances of insurers in servicing inner-city areas.

Steven Miller, deputy insurance commissioner, said the plan would reward companies with high performance rankings with 10% to 25% higher rates of return. Insurers that fail to serve such communities adequately would be penalized with a comparably lower return, he said.

The Black Chamber of Commerce of Los Angeles welcomed the announcement. “What Garamendi is doing is putting a plan in action,” said Carl McGill, executive director of the chamber. “Most other community politicians have been giving us nothing but rhetoric.”

But Peter Gorman, western regional manager of the Alliance of American Insurers, said premiums could rise under the plan. Some insurers now avoiding the inner city because of high risk would simply choose to take the penalty on rate of return rather than take on the added costs of serving those areas, he said.

Some industry representatives said the plan would not work because it focuses on access and not affordability. Even when insurance is available to inner-city businesses, price often puts it out of reach, according to a survey released by Garamendi on Thursday.

About 45% of respondents to the survey who were uninsured for damage from the recent riots in southern Los Angeles said it was because insurance rates were too high. A smaller proportion, 21%, said they had no insurance because it was not available.

Garamendi released new figures that showed the proportion of uninsured and underinsured businesses to be even greater than found by a Dun & Bradstreet survey released last week. Of 2,574 business people surveyed who had suffered damage during the unrest, 52% reported having no insurance at all, while another 17% said they were underinsured.

Uninsured losses among those surveyed totaled about $281 million. Insured damage totaled $378 million.

The survey also found that unlicensed insurance companies, which sold policies to many small businesses that could not obtain or afford policies from licensed firms, were failing to pay many claims. Based on reports from brokers, of $64 million in riot-related claims to unlicensed companies, only about $21 million had been paid so far.