NAIC Adopts Resolution on Race Criteria, Small Face Value Products

Members of the National Association of Insurance Commissioners (NAIC) at the Summer National Meeting in Orlando yesterday approved a resolution to remedy the previous use of race as a criteria in underwriting and to conduct a regulatory analysis of the small face value life insurance industry.

The Florida Department of Insurance has banned race as an underwriting criteria and has been investigating low-value life and industrial life insurance policies sold in Florida. In addition, the Florida Department of Insurance is negotiating a settlement with companies that the NAIC will use as a framework for a national settlement.

“The use of race as an insurance underwriting criteria is inexcusable. It is a practice that is opposed unanimously by state insurance regulators. We, in our separate jurisdictions, are checking with companies to see if it is still being used. If it is, the practice must stop immediately. In addition, state insurance regulators will seek joint settlement with the companies that have not taken the necessary corrective action, including restitution,” NAIC President and Kentucky Insurance Commissioner George Nichols III said.

In part, the resolution states the members of the NAIC “will redirect regulatory analysis of the small face value life insurance business, in all its various distribution forms, and will emphasize in this analysis the overriding goal of fair policyholder treatment…addressing the issue of fair value for the premiums paid.”

“We are just beginning our discussions about how to proceed with the settlement issues, including restitution and an assessment of the small face value products. I am optimistic that we will address this issue yet this year,” Nichols added.

The NAIC is located on the World Wide Web at www.naic.org. It is the nation’s oldest association of state government officials, consisting of insurance regulators from the 50 states, the District of Columbia and four U.S. territories.

Following is the resolution as adopted.

RESOLUTION
WHEREAS, the Florida Department of Insurance on October 25, 1999 issued investigative subpoenas regarding industrial life and low value life insurance policies sold in Florida, and has engaged in an extensive investigation of these products; and

WHEREAS, the investigation indicates that in some cases, industrial life and low value life insurance policies were sold to African-Americans with higher premiums based upon their race; and

WHEREAS, many instances have been uncovered where the initially discriminatory treatment was never corrected to a race neutral practice and is still in force across the nation, with different premiums still being collected based on race, and death benefits not appropriately adjusted ; and

WHEREAS, several other states have initiated information gathering and investigations, it is desirable to coordinate state regulatory efforts to provide consistent and fair treatment for affected policyholders, and to address the problem in an efficient and expedited manner; and

WHEREAS the Florida Insurance Commissioner is currently negotiating the first settlement agreement with an industrial life company;

IT IS HEREBY RESOLVED: That the undersigned members of the NAIC, as the chief insurance regulatory officials of their respective jurisdictions, jointly agree to work with the Florida Insurance Commissioner, as the primary negotiator, in consultation with other regulators, on this settlement agreement; and

Further, the undersigned members of the NAIC agree to work cooperatively, to utilize existing investigative and information gathering work to the greatest degree possible, and additionally to determine if any other companies have engaged in race-based practices which have not been corrected, and to jointly seek a national negotiated settlement with each of the affected insurance companies which will consider restitution for race-based practices, and other remedies as needed.

Further, it is resolved that the members of the NAIC will redirect regulatory analysis of the low value life insurance business, in all its various distribution forms, and will emphasize in this analysis the overriding goal of fair policyholder treatment, not only in terms of market conduct, such as appropriate disclosures, and issues of suitability of the product for the customer, but also addressing the issue of fair value for the premiums paid, and any other related issues, such as sales of multiple policies and appropriate escheat handling; and that the results of this analysis are to be included in detailed proposals for reform, which shall be completed by June 2001, for consideration by the NAIC membership.

Topics Florida Legislation