Insurer sets $206 million to settle bias, other cases

Md. is No. 7 in clients of American General

Insurance

June 22, 2000|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

An American General Corp. subsidiary, accused of unfair practices and racial discrimination, has agreed to provide $206 million in restitution to policyholders, including 59,201 minority members in Maryland.

Under the settlement announced yesterday, American General Life and Accident Insurance Co. of Nashville, Tenn., also must pay a $7.5 million fine that will be split among 50 states based on the number of affected policyholders.

Maryland, which ranked No. 7 in policyholders, will receive $392,800.

The insurer also said it will voluntarily donate $2 million to the National Association for the Advancement of Colored People.

"The bad news is that there are about 60,000 in Maryland over the course of many years who have appeared to be paying racially discriminatory premiums," said Steven B. Larsen, the Maryland insurance commissioner. "The good news is that we reached a settlement that will provide some measure of compensation to them."

The Florida Department of Insurance led the investigation into allegations that companies acquired by American General Life charged African-Americans more than whites for small burial policies and other insurance.

Though the sale of race-based policies was stopped in the 1960s, blacks continued paying higher premiums, Florida regulators said.

The settlement also covers millions of other cases, where race wasn't a factor but involved policyholders who wound up paying more in premiums than the policy's value. Larsen did not know how many Maryland policyholders fell into this category.

Altogether 9.1 million policies nationwide are affected, of which 4.9 million involved racial discrimination.

Bill Nelson, the Florida treasurer and insurance commissioner, is investigating four other insurers for discriminatory practices, including Monumental Life Insurance Co. of Baltimore.

"Monumental has never issued policies on the basis of race-based pricing," said Rosemary Kostmayer, the insurer's director of communications.

Monumental has acquired business from about 200 companies in the past decade, she said, and "policies that had been issued by those companies, any of those companies, on race-based pricing had been adjusted prior to Monumental's acquisition of them."

American General Life has agreed to contact affected policyholders or their beneficiaries. Depending on the policyholder, restitution may come in the form of refunds, premium cuts, increased death benefits or a combination of these.

To handle policyholders' questions, the insurer has set up a phone line at 1-800-681-4944.

The settlement is subject to approval by those states representing 67 percent of the policyholders who were discriminated against.

The Nashville insurer's parent, American General Corp. of Houston, is the nation's third-largest life insurer. It said the settlement would result in a one-time, after-tax charge to earnings of about $175 million, or 68 cents per share, in the second quarter this year.

The company's stock fell 93.75 cents to $60 on the New York Stock Exchange.

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