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Crackdown coming on race-based life insurance premiums

The National Association of Insurance Commissioners (NAIC) has vowed to crack down on life insurers who are allegedly charging blacks higher premiums on "small-face-value" life insurance policies based on their race.

"The use of race as an insurance underwriting criteria is inexcusable."

At its summer national meeting in Orlando, Fla., on June 12, the NAIC adopted a resolution to seek restitution for policyholders who were charged higher life insurance premiums based on their race, and to conduct an investigation into the entire small-face-value insurance industry. Small-face-value policies mostly consist of burial policies (or industrial policies, as they are also called), which are policies that cover a person's funeral expenses.

"The use of race as an insurance underwriting criteria is inexcusable," says George Nichols III, Kentucky's insurance commissioner and president of the NAIC. "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."

The NAIC resolution comes as Florida, New York, and Texas conduct their own investigations into whether life insurance companies routinely charged blacks higher premiums based on their race. These states believe that when these policies were sold some 50 years ago, blacks were charged more because they had shorter life expectancies. While the common practice of separate pricing stopped in the 1960s, some companies never reduced the higher rates that were being charged to blacks for the older policies.

Florida and Texas are looking specifically at companies that sold burial policies, while New York is investigating any racial bias with all life insurance policies.

The resolution passed by the NAIC says the goal of the investigation is to assure "fair policyholder treatment" and that the issue of "fair value for premiums paid" will be addressed. Regulators expect to complete the analysis by June 2001, according to the resolution.

Florida insurance chief tapped

Bill Nelson, Florida's insurance commissioner, has been tapped by the NAIC to lead nationwide settlement negotiations with American General Life and Accident Insurance Co. over its alleged overcharging of black policyholders.

In April, Nelson announced the results of an investigation that found American General and a number of companies it had acquired had routinely overcharged blacks for burial policies in the 1950s. The Florida Department of Insurance (DOI) issued a cease and desist order on April 27, ordering American General to stop collecting higher premiums from blacks. The DOI is now attempting to negotiate a settlement that would offer restitution to affected policyholders in Florida.

Don Pride, a spokesperson for the Florida DOI, says that other states are actively investigating whether insurance companies — including American General — charged blacks higher premiums. A nationwide settlement could bring restitution to policyholders across the U.S. "The commissioner has insisted all along that there be some sort of restitution," Pride says.

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