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Michigan consumers receive settlement in race-based life insurance pricing

In the past 24 months, Michigan residents became entitled to settlements with three major insurers -- New York Life Insurance Co., Cincinnati Life Insurance Co. and American National Life Insurance Co. -- that used two sets of pricing tables: one for blacks and the other for whites. Higher rates also were sometimes charged to Hispanics.

Featherstone thinks it's about time that justice comes. But while civil rights laws now ban blatant racial discrimination, some civil rights advocates and legal experts think discriminatory insurance underwriting still occurs, though cloaked behind a veil of complex algorithms and actuarial tables.

-Blacks and Hispanics were routinely charged more for life insurance policies through the 1960s, based solely on race.

Race-based insurance underwriting practices are against the law; for information, or to file a complaint, call the state Office of Financial and Insurance Services toll-free at (877) 999-6442

"We got the same problem now. When you go across Eight Mile and you insure your home, it's cheaper -- south of Eight Mile it's about $1,500 more," said Featherstone, a local civil rights activist and former staff member for U.S. Rep. John Conyers, D-Detroit.

The spate of settlements comes from lawsuits or state administrative actions against life insurance companies that sold industrial policies, often called "burial" policies, that paid survivors a benefit of around $1,000, just enough to pay for a modest funeral. At the peak of their popularity in the 1950s, the policies were often sold door-to-door to poor or working-class black people, who paid roughly $1 a week for them.

The policies came under scrutiny in May 2000 when the state of Florida launched a comprehensive investigation into the underwriting practices of American General Life Insurance Co.

The American General inquiry focused on different premium rates, compensation rates, risk classifications and unequal treatment with regard to dividends, benefits of other policy terms that were based solely on race.

Florida's investigation resulted in a $215 million settlement with American General, involving 1,176,625 policies and spurred similar investigations in many other states, including Michigan. Investigators found that many companies abandoned their race-based underwriting practices in the 1950s or '60s but never adjusted the premiums or benefits on the policies that were sold under the old, discriminatory rules.

"We looked at 31 companies in Michigan in 2002, and they were all cleared," said Andy Schor, spokesman for state Financial and Insurance Services Commissioner Linda Watters.

While no class-action lawsuits or administrative actions have originated in Michigan, thousands of Michigan residents have been included in settlements reached with at least nine major life insurance companies across the nation, including American General, American National, Cincinnati Life, Liberty Life, Life of Georgia/Southland, Metropolitan Life, Monumental, New York Life and Unitrin.

Director of Insurance Nat Shapo served as the lead regulatory negotiator for a group which acted on behalf of all the members of the National Association of Insurance Commissioners (NAIC). On May 2, 2002, Shapo announced that the Illinois-based Unitrin Insurance Group agreed to a guaranteed $27 million national settlement over charges of racially discriminatory rating practices in the sale of life insurance. The settlement also includes $6 million in relief for beneficiaries who never received a death benefit to which they were entitled.

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