For more than 100 years, some insurance companies discriminated against African-Americans in pricing and payouts of life insurance policies. This practice began after the end of the civil war and continued as common practice for over a century. Thanks to the Civil Rights Act, this practice is now illegal, however the damage done by discriminatory pricing may still affect descendants today.
Complaints have largely centered around life insurance policies such as “industrial life insurance” or “burial insurance”, policies with a low face-value that require small weekly premiums to maintain. Though the discriminatory pricing practices were banned in some companies, insurance policies may have stayed in effect until the 1980s or beyond and ultimately cost much more than a payout.
Between 2000 and 2004, a number of major cases were filed and settled with large insurance companies who had been accused of selling inferior policies at higher rates to African-American customers than to white customers.
Industrial Life Insurance
Life insurance intended to cover funeral and burial expenses were sold to both white and black workers. This insurance was available as a small monthly payment, but the policy was only good for as long as the premium was paid. The longer a person lived, the more money the insurance company stood to make.
By 1881, insurance companies began claiming that Black mortality rates were higher than white mortality rates, raising prices to cover Black children and lowering payout amounts for Black adults by one-third in comparison to white coverage. In some instances, insurance agents were instructed by their companies to limit insurance policies written for Black people to no more than 20% of an agent’s business. Other companies banned business with Black people, even refunding premiums and cancelling policies previously sold to Black households.
In 1884, the first legislation was introduced which would ban insurers from using race as a factor in determining premiums and coverage. The Massachusetts bill was opposed in full force by the insurance industry, but the legislation passed. Nine states followed with similar legislation, however the majority of the states never addressed the issue. Today, only 17 states explicitly ban use of race in determining life insurance premiums and coverage.
Substandard Policies Sold to African Americans
Through the 19th century, life insurance companies found new, possibly less obvious ways to continue discriminating against African Americans. Some companies paid no or only partial commissions for standard insurance policies sold to Black people. Others paid full commissions only when substandard policies were sold at a higher cost, with less coverage.
These substandard insurance policies were commonly marketed as “burial” insurance or coverage. They were mainly offered in Black communities and in many cases, insurance payments paid over the years added up to much more than the benefits paid. Payouts only occurred if payments were kept up to date, even if the amount of insurance had already been covered.
In many communities, burial insurance was the only type of coverage ever discussed with Black customers and little information was given about cost or coverage. These practices with discriminatory pricing and provisions also spread into other insurance industry products.
Other Racially Discriminatory Pricing
Discrimination based on race, particularly against Black populations, spread into other areas of insurance and investment including mortgage underwriting. The practice was codified into Federal Housing Administration (FHA) lending practices in 1936 when the Agency published the underwriting manual which included “redlining” as federal policy.
While insurance companies continued to charge Black people as much as 30% more in premiums, mortgage insurance also increased and lending for housing became more difficult to obtain based on race. Unravelling of the system did not begin to occur until after passage of the Civil Rights Act of 1964.
Many industry experts still claim that there continues to be a “two-tiered” system that may disadvantage Black people. Confirmation of these facts are still difficult as pricing algorithms are considered proprietary information and insurance companies are not transparent.
African Americans and other minorities may still be disadvantaged in payouts of life insurance policies that have been held for decades and in unseen practices held by insurance companies.
Racial Discrimination in Live Insurance Settlements
Lawyers at Seeger Weiss served on the Plaintiffs’ Steering Committee prosecuting the federal life insurance discrimination cases that were centralized in the U.S. District Court in New Orleans for pre-trial coordination by a panel of Federal judges.
Cases settled included 16 conglomerate lawsuits which covered 14.8 million life insurance policies sold between 1900 and 1980 and required that companies pay more than $556 million* in settlements and costs. Additional lawsuits were also settled separately.
Seeger Weiss represents clients in consumer protection cases against companies who have discriminated against or acted unfairly towards an individual or a group of individuals. If you or a loved one have suffered due to discrimination or other wrongful action, please call our law firm directly.
*Prior results do not guarantee or predict a similar outcome with respect to any future matter.