TDI Launches Probe Into Race-Based Pricing of Small Life Policies

The Texas Department of Insurance is surveying insurers selling “industrial life” and similar small life insurance policies to determine if any are charging African-Americans higher premiums than others.

TDI sent letters last week to 33 companies selling industrial life and other forms of small amount life insurance traditionally marketed to low-income consumers.

The letters, signed by William O. Goodman, special litigation counsel in TDI’s Legal and Compliance Program, said the department was “not implying that your company or its predecessors engaged in this practice or if it once did, continues to do so.”

“However,” the letter said, “because evidence of this practice was not confined to explicit table ratings such as ‘white risks or Negro risks’ but was frequently masked by references to ‘White Risks Only’ or ‘substandard’ or ‘socio-economic’ rating factors, past discriminatory practices may not be readily apparent.”

Goodman told the companies they would need, therefore, to exercise a “very high degree of due diligence” in researching their files to respond to TDI’s inquiry. Companies have 45 days to respond to the inquiry instead of the usual 10 days.

Some companies’ practice of “race-based pricing” of industrial life policies in the 1950s, ’60s and early ’70s came to light recently as a result of a Florida Department of Insurance investigation, which found that some of the policies are still in force with higher premiums for African-Americans than for whites.

Companies that find policies that, at the time of issue, were priced according to the customer’s race are required to provide TDI information on those policies, including the actual policy forms, premium schedules and rating manuals. Also, documents showing how many such policies were sold, along with the face value and premiums for such policies sold in Texas each year from 1960 until now, documentation of excess premium collected from African-American customers, company documents relating to management discussions of race-based pricing and documents about steps taken by the company to remedy and/or make restitution for race-based pricing must be provided.

Lee Jones, TDI spokesman, said the department’s interest was spurred by Florida’s finding of race-based premium pricing among insurance companies held by American General Corp.

“Given the fact that some of the same companies are involved [in Texas], we’d be derelict if we didn’t check into this,” Jones said.

Companies found to be engaging in race-based pricing are subject to disciplinary action under laws prohibiting unfair discrimination in the sale and pricing of insurance, though Jones is uncertain if they will be required to repay consumer overbilling.

“If restitution is in order we can require restitution,” he said. “But whether money would be returned to consumers would depend on the situations.”

Meanwhile, Florida has been authorized to negotiate a nationwide settlement with American General Corp., which has admitted to charging nearly 350,000 African-American policyholders higher premiums on industrial life policies in that state.

The resolution was signed at the National Association of Insurance Commissioners’ summer convention in Orlando. The resolution also calls for individual investigations to be performed by each state on all life insurers. It is yet to be seen how many additional companies may still be charging higher premiums to African-American customers.

Topics Florida Texas