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Black Americans Still Overcharged Racially Discriminatory Life Insurance Policies Aug. 28, 2000 (SmartPros) A recent disclosure by several life insurance companies revealed that that they continue to collect premiums on racially-discriminatory policies. The following is advice for the entire insurance industry: Start an immediate investigation into the practices of all divisions and subsidiaries of your company. If old life insurance policies, often called ""burial" or "industrial life" policies are found, company officials should follow the example set by American General: Own up to it, pay any state and federal fines and make restitution to affected policyholders immediately.
State Investigations Are Multiplying
One by one, more states are starting their own investigations based on findings of the Florida Department of Insurance's investigation and settlement with a major insurance company in June of this year. New York and Texas have publicly announced that similar investigations are underway while Florida and Georgia continue their eradication of race discrimination in insurance premiums. According to a July 18 article in the Wall Street Journal, "Florida and Georgia regulators issued cease-and-desist orders to 28 insurers, directing them to stop collecting any higher premiums from blacks based on their race." The article quotes a spokesperson from the Florida Department of Insurance who said, "The 28 companies were selected because they had sold small 'burial insurance' policies, formally known as industrial life insurance, to Florida and Georgia residents." Insurers' Lawsuits Are Surfacing In addition, a group of law firms has joined together to "bring cases against life insurers for allegedly failing to correct the effects of discriminatory practices . . ." according to a July 13 article, "Prudential Insurance, MetLife Face Suits Over Alleged Racist Practices" that also appeared in the Wall Street Journal."" The article also stated that within the past few days, "lawyers for African-American policyholders sued [both companies] for what they allege was a 'nationwide scheme of racial discrimination' in past sales of life insurance." MetLife's spokesperson, Kevin Foley, was quoted in the article as commenting that, "No group of policyholders, including African Americans, have suffered economic loss from doing business with our company." A written statement from Prudential was quoted in the article, "like many other insurance companies, Prudential, at certain points in history, used race-based underwriting." According to the article, "[Prudential] stopped those practices many years ago and since has made efforts to increase benefits or refund premiums to black policyholders who had been affected . . . The company said any black policyholders who think they may not have received compensation should contact Prudential."
The Original Investigation
What originally made the Florida Department of Insurance launch an investigation? Elsie Cromwell, a consumer advocate hired by the Florida DOI in 1997, took on "burial insurance" as her first issue (Wall Street Journal Interactive Edition, June 28). She based this decision on her knowledge about a similar burial policy that her mother had held for decades. It took Cromwell two years to convince her superiors to listen to her suspicions about the policies. She finally went straight to the Commissioner himself. When she told Commissioner Bill Nelson in 1999 that she was seeking state legislation banning the sale of burial policies and requiring disclosure to policyholders about their benefits, he listened and immediately acted. The American General Corporation, based in Texas, is the first company affected by the Florida investigation. American General is paying a hefty price because some of its subsidiaries had continued to collect weekly premiums on small life insurance policies that were originally sold to African-Americans in the 1950s and '60s. Policies for Caucasians at that time were less costly and generally offered better coverage.
By the mid- to late 1960s, the civil rights movement -- and laws initiated as a result of the movement -- put enough pressure on insurance companies that they were forced to stop using two different rate tables for black and white Americans. However, not all companies complied with the new rules: While some companies officially stopped using race-based premiums when they sold new policies, former actuaries and agents say in interviews that in some cases the practice continued for a decade or more under another guise" ("Past Due: In Relic of '50s and '60s, Blacks Still Pay More For a Type of Insurance," Wall Street Journal, April 27).
A former insurance agent in the mid-1960s for Independent Life & Accident Insurance (now owned by American General), James D. Crane stated in the same article that his boss had given him two books with different sets of premiums and told him to "write the white people out of this and the [blacks] out of this." Apparently, the length of time that this practice continued varied significantly between different insurance companies. The companies listed in the article are the United Insurance Company of America, a unit of Unitrin Inc.; the Monumental Life Insurance Company, a unit of Aegon; the Liberty National Life Insurance Company, a unit of the Torchmark Corporation; and the Life Insurance Company of Georgia, a unit of ING Group.
According to a New York Times article on June 22 entitled "Insurer Agrees It Overcharged Black Clients," over 30 companies still "have low-cost burial policies on their books. Florida is investigating four of the companies that it suspects charged higher rates to poor blacks and in some cases, Hispanics."
American General's Settlement With Florida Sets An Example
The results of settlement negotiations between American General and the State of Florida are multi-pronged and the implications, staggering:
According to the same article, 26 states and the District of Columbia have already ratified the settlement from American General Corporation. American General, according to the New York Times article on June 22, stated that it "discovered the two-tiered system only after Florida insurance regulators subpoenaed company records last October." Robert Devlin, chief executive of American General, was quoted in the same article as stating that it was "imperative that we move swiftly and responsibly to correct an unfortunate historical practice."
From a public relations standpoint or from an ethical one, other companies with similar issues should disclose them and follow the lead of American General -- instead of waiting until state investigations and lawsuits turn this issue into a full-fledged, national debacle.
Notes
"American General Life to Pay $206 M In Pricing Settlement," Dow Jones Newswires (June 21, 2000). "Ardent Opponent of Burial Policies Enjoys a Victory," The Wall Street Journal Interactive Edition (June 28, 2000). Cybulski, Mark, "Crackdown coming on race-based life insurance premiums," insure.com (June 15, 2000). Cybulski, Mark, "Insurance commissioners approve $206 million settlement in American General lawsuit," insure.com (July 11, 2000). Cybulski, Mark, "New York probes possible discrimination in life insurance premiums," insure.com (June 9, 2000). "Prudential, MetLife Respond To Discrimination Lawsuits," Dow Jones Newswires (July 13, 2000). Paltrow, Scot J., "American General Will Take Charge To Settle Race-Based Pricing Claims," The Wall Street Journal (June 2, 2000). Paltrow, Scot J., "Past Due: In Relic of '50s and '60s, Blacks Still Pay More For a Types of Insurance," The Wall Street Journal (April 27, 2000). Paltrow, Scot J., "Prudential Insurance, MetLife Face Suits Over Alleged Racist Practices," The Wall Street Journal (July 13, 2000). Paltrow, Scot J., "Regulators Tell Insurers to Stop Collecting Higher Race-Based Premiums From Blacks," The Wall Street Journal (July 18, 2000). "States Ratify American General Fla. Insurance Settlement," Dow Jones Newswires (July 10, 2000). Treaster, Joseph B., "Insurer Agrees It Overcharged Black Clients," New York Times on the Web (June 22, 2000). Please send your comments, questions and article proposals to information@smartpros.com.
2000, Smartpros Ltd. All Rights Reserved.
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