Life Insurance Co. Settles Race Case

Thursday, June 22nd 2000, 12:00 am
By: News On 6

TALLAHASSEE, Fla. (AP) — Bessie Jones didn't earn much as a domestic worker and she didn't want her death to be a financial burden to her two children.

For much of her life, she gave a door-to-door salesman a few cents a week for burial insurance. What the 71-year-old grandmother didn't know was that as a black policyholder, she was being charged more than whites with similar risks.

American General Life and Accident Insurance Co., based in Nashville, Tenn., may not have known either that several smaller life insurance companies it purchased had long-time dual pricing systems based on race.

But faced with a national investigation by insurance commissioners and a class-action lawsuit in federal court, American General settled charges of fraud and racial discrimination Wednesday, agreeing to pay holders of 9.1 million policies nationwide a total of $206 million.

The settlement affects tens of thousands of people, many of them poor minorities who live in the South. All 50 states are expected eventually to join the agreement.

Many of the customers not only were overcharged because they were black, but also paid thousands of dollars in premiums on policies that will pay only a few hundred dollars when they die.

Jones, a retiree who lives in Sarasota, said her children wouldn't have gotten much out of the policies she paid for over the last several decades.

``They wouldn't have had enough money to bury me anyway,'' she said.

Under the settlement, American General, one of the nation's biggest life insurance companies, also will pay $2 million to the NAACP and $7.5 million in penalties to several states.

In Florida, which has the most policyholders, Insurance Commissioner Bill Nelson said several insurance companies now owned by American General began discriminatory sales practices decades ago, mostly to poor, uneducated blacks in the rural South.

``It's tragic this discrimination and exploitation occurred in the first place,'' Nelson said. ``But it's incomprehensible this practice occurred up until just a few days ago.''

American General said it believes the settlement is fair.

``We strongly believe that any pricing based on race is unacceptable and will not be condoned,'' Chief Executive Robert Devlin said. ``American General moved swiftly and responsibly to correct the regrettable historical practice of differential pricing.''

There are more policies under the settlement than customers because some people bought more than one policy.

In the most egregious cases of race-based overcharging, more than 300,000 people will be eligible for increased death benefits, and more than 100,000 of those people will also see premium refunds of at least $150, Nelson said.

Many customers still paying premiums to companies owned by American General will get premium reductions.

In addition to Florida, where 184,587 policies for which blacks were overcharged are in effect, the most affected states are Georgia, with 176,930 policies, Virginia, 172,302, and Tennessee, with just under 80,000.