From the Office of State Senator Rodney Ellis
For Immediate Release
February 24, 2002
Contact: Mike Lavigne, (512) 463-0113
Race-Based Insurance Policies Must Be Corrected
Imagine for a moment that you have been driving your car, as you bought it, for a year. Suddenly, the tires on your car were recalled. What if the company that made those tires admitted to a major flaw, but only promised not to make those tires anymore? What if they never mentioned the recall to you, even as you brought your car in to get your free tire rotation?
Also imagine that the Civil Rights Act of 1964 said that it is illegal to maintain separate drinking fountains for whites and African Americans, but that the law only applied to those born after 1964. If you were born before 1964, you would have to drink from a separate fountain until the day you die.
Both of these scenarios would be completely unacceptable today. Or would they?
Many of the country's biggest and wealthiest life insurance companies participated in a racist and discriminatory pricing policy known as "race-based pricing." They sold and collected premiums on small face-value life insurance policies door-to-door in poor and working class neighborhoods from the late 1800s all the way to the 1970s. People of color oftentimes received less coverage for the same amount of premium as whites. This practice was not illegal then, but it is now. If it had ended there, it would not be an issue today. Instead, we could just chalk it up to another symptom of an era of ignorance that went the way of "colored" drinking fountains and "separate but equal" schools.
We could solemnly look back and remember "how things used to be" and how much better they are now. This is not the case. These policies, issued and priced by the color of one's skin, are still being collected on TODAY. To this day, agents still go door to door and collect these premiums.
Nationally, departments of insurance are investigating the practice and lawsuits are pending. The defenses by those companies who refuse to cooperate and make things right are, at best, unsettling. They claim that they never engaged in these practices in the first place, and even if they did, it wasn't illegal at the time. They also argue that the statute of limitations has long expired since the deals were made 20 or more years ago. Yet these insurance companies continue to profit from these policies, most of which are upside down by now. Upside down pricing refers to policies designed so the amount paid in premiums will exceed the face value of the policy in a relatively short time. Those who bought these policies and still pay on them, often pay between 50-200 percent over the face value before they die.
Lobbyists for the insurance industry have gone so far as to attempt to pass resolutions at the National Conference of Insurance Legislators that would create a safe refuge for insurance companies, further harming consumers and victims of this racist practice.
Some companies, like American General who paid $250 million in restitution, Liberty Life and Life of Georgia, are taking responsibility for their actions. This is all we ask. As Enron unravels on front pages and television sets across the country, we are witnessing a monumental example of corporate greed run amok.
I make this plea to America's insurance companies: Take Responsibility. Don't rely on legal wrangling and expensive public relations to talk your way out of this. Please don't wait for an investigative journalist to expose you like Firestone, the tobacco industry, or Enron. Make things right. Restitution is the first step. After you have corrected your mistakes, shatter your glass ceilings. Diversify your boards. Do more business with minorities and women. Be pro-active in these regards. Let us point to you and say, "This is the standard. This is how corporate America handles its problems in the new millennium."
If you believe that you may have bought one of these policies, be sure and call your State Insurance Commissioner. Chances are, they, or another state, are investigating the company from which you bought your policy. Nationally, over 50 companies are being investigated. In Texas, there are a total of 18 examinations planned or in progress.
(Rodney Ellis is a State Senator from Houston, Texas and serves as Chairman of the Senate Finance Committee. Helen Giddings is a State Representative and and serves on the House Appropriations Committee.)