Insurance industry redlining is widespread in inner-city areas and often extends "far beyond blighted urban areas into many otherwise healthy neighborhoods," the Department of Housing and Urban Development has charged in a new report.

The report also concludes that redlining "has an undeniable racial component," and that redlined areas "often coincide with nonwhite neighborhoods."

Insurance redlining is the practice of refusing to provide insurance for property because of its location.

The report called insurance for property because of its location.

The report called insurance redlining "a kind of arbitrary, guilt-association indictment of entire neighborhoods or even cities that excludes many decent risks from access to a free insurance market. It is by indirection choking credit and the means to maintain healthy core urban areas today in the nation." It said such relining is sometimes done on the basis of zip codes.

Ronald W. Vinson, vice president for Washington relaions at the Insurance Information Institute here, challenged the report's conclusions and said HUD "wants to blame the insurance industry for all the ills of urban areas."

He charged that the study on which the conclusions of the report were based is "not very extensive and was put together in a hurry."

Vinson denied that insurance companies discriminated by race, but said they do take into account age of buildings, condition of neighborhoods and income level.

He said that redlining "may or may not" exist in the 23 states that have no programs for assuring property owners in high-risk areas access to insurance. But he said that, by definition, redlining does not exist in the other 27 states and the District of Columbia that do have such programs, known as FAIR plans.

FAIR plans insure about 900,000 structures in those 28 jurisdictions, but in only three states - Wisconsin, Massachusetts and Rhode Island - do they provide homeowner coverage at affordable rates, the HUD report said.

HUD noted that insurance coverage under New York's FAIR plan costs three to five times more than conventional insurance. Companies in Virginia also can charge up to 25 percent more for FAIR plan insurance, but in Maryland and the District of Columbia, rates are comparable with regular insurance, Vinson said.

Vinson noted that the HUD report does not contain legislative recommendations and said the Office of Management and Budget "refused to allow the recommendations to go to Congress."

However, Gloria Jimenez, HUD's federal insurace administrator, whose staff prepared the report, said, "OMB felt the report is strong enough and doesn't need recommendations."

It was understood that HUD proposed that FAIR plan rates be set no higher than private market rates and that the Justice Department raised antiturst objection to the proposal. The Housing Banking Committee has approved a measure incorporating the proposal, but the Senate Banking Committee has not.

The report, entitled "Insurance Crisis in Urban America," was released last week.