The president of the The St. Paul Insurance Companies told fellow insurers last week that discontent over redlining by insurance companies "is now a roar," and pledged that his company would not refuse to issue policies on the basis of geographic location.

His pledge came one day before the Department of Housing and Urban Development issued a report stating that insurance redlining is widespread in inner cities.

Speaking in New York before the annual meeting of the American Insurance Association, St. Paul president Waverly G. Smith said that the insurance industry is "guilty (of redining) in its broadest sense," and he urged it to adopt new approaches.

The HUD report concluded that, "without question, insurance availability and insurance affordability in urban areas are crises of monstrous proportions. The tentacles of these crises reach into diverse areas of mortage financing and property appraisals, thereby denying credit and sealing the doom of today's vital urban neighborhoods."

The report described the downward spiral that occurs when an insurer declines to write or renew coverage simply because of the property's location: Without insurance, mortage money becomes difficult to get. Business cannot expand without adequate insurance and the neighborhood goes down hill. Due to the high cost, an increasing number of homeowners and merchants either buy insufficient coverage or go uninsured.

Even when owners get protection from state pools after private insurers have refused them, losses are adjusted on market value, not on replacement cost, the report noited. "As a result, claim payments under FAIR (state) plans are insufficient for the owner to rebuild the property, and the possibility for abandonment is greatly increased," HUD said.

The HUD report, a compilation of prior studies and hearings, did not say definitively how widespread insurance redlining is.

It quoted the New York Public Interest Research Group as saying that "over 80 percent of all agents and brokers whom we interviewed recognized and affirmed the existence of the redlining practices." Insurance companies, on the other hand, have denied that they extend or deny coverage on the basis of zip code location.

Last March the president of the Aetna Insurance Company, Frederick D. Watkins, circulated a directive to Aetna agents that said, "Aetna has long held the position that our business requires individual risk underwriting with consideration by the underwriter of the specific physical characteristics of the particular risk." He added, "We do not believe in redlining as a practice and certainly do not support it in our organization."

In his speech, Smith outlined this new auto and homeowner underwriting policy for St. Paul, 16th largest liability insurer in the country:

Coverage will not be refused because of their geographic location.

The age alone of a building will not disqualify it for coverage, if it is properly maintained.

Agents will not be terminated or refused appointment because of their office location.

No building will be termed an unsafe structure without actually being examined.

All applicants who are denied coverage will be given specific reasons for that denial, and the information in question will be made available only to the applicants or to an authorized regulatory agency.

Coverage will not be refused merely because an applicant has previously been turned down by other companies.

Charles Hunt of the American Insurance Association called Smith's speech "a statement that had to be made." Harold Wilde, Wisconsin state insurance commissioner and head of the National Association of Insurance Commissioners task force on redlining, called initiatives like this "long overdue. They should be applauded, but there is still a hell of a lot more to do."

The task force is calling for additional solutions, including new types and promotions of homeowners insurance, model cancellation and declination forms, complaint bureaus, and the presence of inner-city residents on insurance boards.