Insurer Agrees It Overcharged Black Clients

The New York Times
June 22, 2000

After decades of paying higher premiums for life insurance than white customers, more than two million black customers and their families nationwide are going to be compensated in a settlement reached yesterday with one of the nation's biggest insurers.

The insurance company, American General, said that it was making restitution of $206 million, mainly to the black customers and their heirs who, until as recently as April, paid as much as 33 percent more than white customers for small policies intended to cover burial expenses.

American General also agreed to pay fines of $7.5 million to regulators in five Southern states, where most of the insurance was sold, and to contribute $2 million to the National Association for the Advancement of Colored People.

One black policyholder, Bessie Jones, a 71-year-old grandmother in Sarasota, Fla., told state insurance regulators, who uncovered the racially biased practices, that over 40 years she bought at least a dozen policies with face values of about $1,000 from a company now owned by American General. On one of several policies she cited, she said she paid premiums of 90 cents a week and had paid in more than $1,600 for the $1,000 death benefit.

Bill Nelson, the insurance commissioner in Florida who, along with private class-action lawyers, negotiated the settlement on behalf of all 50 states, called the long history of discrimination tragic. And he added, "It's incomprehensible that this practice continued up until recent days."

The company said it had begun to take steps to end the practice as soon as it became aware of it.

The settlement was the first step in setting things right with millions of poor blacks who paid more for their insurance because the companies calculated that they would have shorter life spans than white customers. While regulators say millions of these policies remain in effect, the two-tiered policy was outlawed in the 1960's. And the insurance industry now acknowledges that poverty rather than race led to shorter lives for many of those against whom the companies discriminated.

Regulators say individual policyholders and their heirs are likely to receive a few hundred dollars each, in cash and improved coverage, with up to 11.5 percent of the $206 million going to the lawyers, led by the New York firm of Milberg, Weiss, Bershad, Hynes & Lerach, which specializes in class-action suits.

About $50 million of the money has been designated for both black and white customers who, regardless of the rates they were charged, paid more over the years in premiums than the few hundred dollars that these policies would pay.

More than 30 companies have low-cost burial policies on their books. Florida is already investigating four of these companies that it suspects charged higher rates to poor blacks and, in some cases, Hispanics. Those four companies are all subsidiaries of bigger companies: 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. Both Aegon and ING are Dutch companies with growing operations in the United States.

"This is huge step in the right direction," said the Rev. Jesse Jackson, whose Rainbow Coalition Wall Street project concentrates on equality in financial services.

He said he had no doubt that millions of other cases awaited resolution. "My grandmother had these kinds of policies when I was growing up in Greenville, S.C.," he said. "They would pay 25 cents a week. The insurance man and the rent man would come by every week and when you could only pay one, you paid the insurance man because all the old folks wanted a dignified burial."

American General said that nearly 5 million discriminatory policies on the lives of more than 2 million people, plus 4.3 million other policies held by both black and white customers, were sold by companies it had acquired over the last 20 years as it was becoming one of the nation's largest insurers. On about 400,000 of these other policies, the company said, customers have paid or would have paid premiums that exceeded the face value of the policy. This practice is not illegal, but Mr. Nelson insisted on compensation for it.

Even though the policyholders were making regular monthly payments to an American General subsidiary, American General Life and Accident in Nashville, American General said it discovered the two-tiered system only after Florida insurance regulators subpoenaed company records last October.

The Florida investigators had begun looking into the sales of small burial policies, sometimes referred to as industrial policies because they were originally designed for low-paid industrial workers, after receiving complaints from some customers that they had paid more in premiums than the policies were worth.

Florida officials said that American General executives began negotiations on settling the state's concerns earlier this year but that the insurer kept collecting higher premiums from blacks than whites until April, when Florida demanded that the practice stop. Talks between the state and the insurance company had broken off, but they resumed after the so-called cease-and-desist order was issued.

"We do not condone this practice," American General said when it stopped collecting the premiums.

In a statement yesterday, Robert M. Devlin, the chief executive of American General, said it was "imperative that we move swiftly and responsibly to correct an unfortunate historical practice."

Larry Mayewski, a senior vice president at A. M. Best, the insurance rating agency, said the settlement would not have a major financial effect on American General, which has assets of about $110 billion, making it the nation's fourth-largest life insurer.

Referring to sales, Mr. Mayewski said: "There's always some impact when you're in the news for something that is not overly favorable. I think the organization has decided, right or wrong, that the best thing to do is settle this and put it behind them and move on."

Mr. Jackson said he hoped that other companies that followed biased practices would settle rather than wage long court battles.

Mr. Jackson said his Rainbow Coalition had been independently reviewing the records of insurance companies during the days of slavery and segregation. His group has reported that some companies sold life insurance policies on slaves with their masters as the beneficiaries.

The two-tier pricing system, he said, "is a concrete, documented exploitation and violation and we now need a commitment to heal the breach."

Mr. Jackson said he had a "very good meeting" with American General executives at their headquarters in Houston after they announced the settlement.

"It's no secret we had a slavery system," he said. "It's no secret we had a legally segregated society. The issue now is how in some meaningful way to end the policy and to pay the people who were exploited."

Photo not included: Bessie Jones, with Bill Nelson, Florida's insurance commissioner, said she had paid $1,600 for a policy with $1,000 in death benefits.

Copyright © 2000 The New York Times Company

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