Insurer settles race-bias suits

By SHANNON BUGGS

June 22, 2000 Web posted at: 10:19 AM EDT (1419 GMT)

In this story: "Morally right" Specifics of the settlement RELATED STORIES, SITES

HOUSTON, Texas (The Houston Chronicle) -- American General Corp. has agreed to pay $206 million to end nationwide investigations and class-action lawsuits accusing the company of discriminating against African-Americans and taking advantage of poor people by overcharging them for life insurance.

It is the first racial discrimination settlement in the life insurance industry, said company executives and state regulators.

"We're much more used to hearing about insurance discrimination because you have the wrong ZIP code," Texas' Insurance Commissioner Jose Montemayor said Wednesday. "This was about discrimination based on the color of your skin."

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A three-year investigation by the Florida Department of Insurance revealed that American General and other insurers were charging thousands of African-Americans higher premiums on antiquated life insurance policies than they charged whites.

The investigation also showed black and white owners of low-value life policies often paid more in premiums than the value of the insurance.

If approved by the courts and all the state commissioners, American General's payment would end four lawsuits and provide cash, lower premiums and/or higher death benefits for more than nine million American General policyholders across the country.

"In some sense, this is reparations and it is morally right," the Rev. Jesse Jackson said Wednesday. He spoke last week at the Orlando convention of the National Association of Insurance Commissioners and lambasted American General and other insurers for race-based rates.

Jackson is in Houston this week to ask politicians to grant more time to death row inmate Gary Graham, who is set to be executed today. But Jackson took time Wednesday to meet with Jon P. Newton, American General's vice chairman of corporate operation.

"We cannot undo the past, but we can make some repair and restitution to build a better future," Jackson said after the meeting.

"This settlement sets the pace for the entire industry."

For several months, American General has been in talks with Florida regulators to determine fair compensation for the discriminatory practices.

During an April breakdown in negotiations, American General announced it stopped collecting the extra premiums on the same day Florida's Insurance Commissioner Bill Nelson banned the company from continuing the practice in Florida.

Nelson's department uncovered the pricing discrimination as it investigated industrial life insurance, commonly called burial insurance. Typically, people earning subsistence wages pay door-to-door agents small weekly premiums for such policies to cover the cost of a modest funeral.

Last week, the nation's insurance commissioners gave Nelson permission to negotiate on their behalf with American General and other insurers that failed to eliminate or reduce race-based premiums when they stopped selling industrial life insurance more than two decades ago.

The settlement requires the subsidiary to pay a $7.5 million fine to be split among the affected states according to their share of aggrieved policyholders. Most of the money will go to Florida, Georgia, Virginia, Tennessee and Alabama. Texas' portion of the fine is $305,800.

American General also agreed to contribute $2 million to the National Association for the Advancement of Colored People.

Policyholders' share of the $206 million settlement will be divided among two classes of the insured and their beneficiaries.

People who have policies on which they have paid more in premiums than the face value would get their death benefits boosted. The minimum increase would be 10 percent of the excess amount paid and the maximum would be double the face value if the policyholder has paid premiums worth five times the value of the policy, says Mark Berg, general counsel for American General. But increased death benefits are only available on the 5.7 million policies bought in 1993 or later.

The other class relates to the 4.9 million policies with race-based rates that have been terminated or kept in force since 1982. Of that number, American General says only 1.2 million policies were underwritten using rate books with race distinction built into their pricing. People still holding those policies, as well as beneficiaries of people who have died, would receive cash refunds.

The minimum payment would be $150 per policy.

Owners of the 108,000 policies still in force would also get increased death benefits in line with what the higher premiums should have bought them.

Policies that have lapsed can be reinstated with higher death benefits by former policyholders paying all missed premiums at the reduced rate.

The rest of the class comprises policies that were not underwritten using race-based rates, but feature payment discrepancies between blacks and whites. These people would get the higher death benefits and the reduced premiums, but no refunds.

American General said the settlement will force it to take a one-time, pre-tax charge of $265 million against profits for its second quarter that ends June 30.

The company's stock closed down 94 cents Wednesday at $60 a share.

"It was imperative that we move swiftly and responsibly to correct an unfortunate historical practice," Robert M. Devlin, American General's chairman and chief executive said in a written statement.

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