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Insurer sued over biased policies

For years, blacks were charged more for burial insurance, and some are still paying the price.


© St. Petersburg Times, published April 28, 2000

Thousands of black Floridians have been paying more than whites for insurance sold door to door under discriminatory formulas dating back to the 1940s, a statewide investigation has found.

State insurance regulators Thursday filed an order charging that one of the nation's biggest life insurers, American General Life and Accident Insurance Co., continues to collect race-based premiums in Florida today based on those decades-old formulas.

As late as the 1960s, some companies selling the low-priced, low-benefit "burial insurance" kept separate rate charts for white and black customers. The two-tiered rates were eliminated but never corrected for those holding the policies.

The cease-and-desist order issued by Florida Insurance Commissioner Bill Nelson gives Nashville-based American General 20 days to submit a corrective plan that includes reimbursing policyholders.

"By continuing to collect the higher premiums, a company is perpetuating racial discrimination," Nelson said Thursday. "I think this company, American General, is genuinely embarrassed that in the year 2000 this old vestige of racism . . . would still be practiced."

In fact, American General offered a mea culpa Thursday. The insurer said it only "recently discovered" some of the race-based policies issued in the '60s were still in force. It said the affected policies account for a small portion of its total business and blamed the problem on companies it has acquired.

"We do not condone this practice and have ceased collecting any additive premium," the insurer said in a statement. "American General strongly believes that our policyholders and customers should be treated fairly and with dignity and respect. We deeply regret these past actions of some of our acquired companies."

The company insisted it took "immediate, decisive action to correct this situation," but the issue has been brewing for months and Florida regulators said they filed a complaint only after prolonged negotiations failed to produce a settlement.

The state investigation began last October as Nelson's last-ditch effort to end the sale of controversial low-value insurance polices that were commonly peddled after World War II to poor people and minorities as an affordable way to cover burial expenses. The coverage, also known as industrial life or burial insurance, cost as little as a quarter a week. The catch was that people had to keep paying indefinitely to keep the coverage even though the payoff was a relative pittance.

In committee hearings in Tallahassee and news conferences around the state last year, several holders of the "burial policies" told of paying several times what their policies were worth. One Tallahassee woman told how her mother has paid $3,000 into a burial policy that will provide just $500 when she dies.

Nelson, a Democrat in his final year as commissioner, has been stymied for three years in trying to persuade the Republican-run Legislature to ban the sale of burial insurance and force insurance companies to disclose how much policyholders have paid compared to the worth of their policies.

The latest such bill, sponsored by Rep. Al Lawson, D-Tallahassee, was gutted Thursday afternoon on the House floor. Rep. Joe Arnall, R-Jacksonville Beach, tacked on an amendment that allows companies to continue to sell the policies.

"The problem is some poor people can only buy that kind of insurance and I don't want to create a market where some can have insurance and some people can't," Arnall said.

Arnall, who as the chairman of the House Rules Committee can control which members' bills get heard, reminded lawmakers of his position before the vote on the weakening amendment took place. It passed on a vote of 64-45. Rep. Rudy Bradley, R-St. Petersburg, was the only African-American legislator to vote for Arnall's amendment. The House has yet to act on the overall bill.

On the administrative front, Nelson has had more success.

In October, the commissioner subpoenaed records from five of the top providers of burial insurance.

The insurers' records unveiled a deeper, race-based problem. Documents detailed a common practice in the 1960s in which some insurers openly charged blacks upward of 30 percent more for burial insurance than whites. Independent Life & Accident, now part of American General, even maintained two different books with different premium rates.

The rate discrimination was banned in the mid-1960s, but that didn't stop insurers from continuing to collect the higher premiums based on the old rates, records show.

"To the extent you bought back then and are still paying, you're paying racial premiums," said Chris Hoyer of the Tampa firm James Hoyer Newcomer, which has sued seven burial insurance companies on behalf of policyholders.

Moreover, Hoyer questions whether the insurers continued to be biased in their ratings based on factors other than race, such as job classification and living standards.

"They stopped doing the blatant black-and-white rating but when they went to another economic-based or life-based rating, we just want to see if that's a subterfuge," he said.

In addition to American General, Nelson subpoenaed records dating to 1959 from four other insurers: United Insurance Co. of America; Capital Security Life Insurance Co.; Liberty National Life Insurance Co.; and Life Insurance Co. of Georgia. The five hold most of the $900-million worth of burial insurance policies in effect.

All of the companies remain under investigation. American General was targeted first because it was the largest, with about 40 percent of the 1.2-million low-value policies in force in Florida.

As many as 97,500 of those American General policies in the state were sold on a discriminatory basis, insurance regulators charge. Many of them were sold by companies later acquired by American General. Some black policyholders have paid up their policies but thousands are still paying premiums that range from 7 percent to 33 percent above what whites were charged.

Nelson, who is gearing up for a U.S. Senate race, is encouraging other states to follow his lead.

"I think this is throughout the entire country," he said. "It's just the Florida Department of Insurance that's been on it the last two years. I don't know why the other states haven't gotten into this."

- Times staff writer Jo Becker contributed to this report.

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