Life at a Premium

Harlemites Discover Decades of Insurance Redlining

Naomi Kelly has kept up her life insurance, paying $26 and change every year since she bought the policy in 1953. The 81-year-old mother of three never guessed that the premiums she started paying in her early thirties were higher than normal because she is black. That is, not until a check for under a dollar arrived in the mail just over two years ago, an "adjustment" to correct a badly calculated rate. "A review of our records," the letter accompanying the check said, "indicates that the premium you are paying was priced using race as one criterion."

Kelly was similarly unaware that just a month after the Unity Mutual Life Insurance Company of Syracuse, New York, mailed her the check for 76 cents, it was sued in a class action representing over 40,000 policyholders, furious that the company had continued to charge premiums on the basis of race even though the practice violates various laws, including the Civil Rights Act. A proposed settlement to the suit will be heard in New York's Southern District Court on September 23, some two years after the complaint was filed.

Lilly Kelly, Naomi's daughter, also was angered, and launched a letter-writing campaign to recover all the money her mother is owed. Letters were sent to the head of Unity Mutual, the New York State Insurance Department, U.S. Attorney Mary Jo White, even John Ashcroft. She received letters back from Unity Mutual, assuring her that "management is working closely with the New York Insurance Department to develop a corrective action plan for those who were charged premiums based on racial underwriting guidelines." But there were never any details, no hint of the lawsuit, no proposed time frame for compensation.

It is safe to say that thousands of New Yorkers who bought the higher race-based premiums also don't know that they were misled, and that they are owed money. In fact, before the Voice started making inquiries, the Kellys had no idea their claims were being heard in court.

"It's really not the money," says Lilly Kelly, sitting in a Cuban café on the Upper West Side near her home. "It's the principle. They should have to tell us what's going on. It was a disgraceful practice." And though the amount of money owed in her mother's case is probably small, Kelly points out, "My mother's 81 now. How long do you think she should have to wait to claim what's hers?"

They called it burial insurance, she says, because the policies paid just enough to get someone a decent funeral. As she sips iced tea, she remembers the poverty on 134th Street, where she grew up, and the friendliness of the local insurance broker, who was also black. "What about all the other people who bought policies in my neighborhood at the same time?" she asks.

That generation, says Edwin Barnes, funeral director of Benta's Funeral Home on 141st Street, is cashing in life insurance policies from companies like Unity Mutual to pay the Harlem funeral home's fees. "More than half the policies I see are from Unity or Columbian Mutual," says Barnes, referring to another New York insurer that is also under investigation by the state, and also faces a class-action suit. "Actually, my parents bought us Unity policies when we were kids," he says. Barnes was unaware, he says, that the company charged blacks higher premiums. "But I can believe it," he adds. He saw the same insurance policies during his 18 years at a funeral home in Brooklyn, which also mostly served African Americans.

Timothy Blood, lead counsel in the Unity case, says the investigations into domestic insurers and race-based underwriting started almost by accident. While his firm pursued another case involving American General Life and Accident Insurance Company just over two years ago, former company employees told the lawyers about the race-based policies. "We realized it was an industry-wide practice, and had been since the late 1800s," says Blood. Soon afterward, in June 2000, the New York State Insurance Department circulated a letter to its licensees, ordering them to report on the extent of the practice at their firms (40 insurers operating in New York are still under investigation by the department). American General finally agreed to pay $206 million to settle some 9.1 million cases nationwide, most of them in the rural South. And just a few weeks ago, industry giant MetLife announced a settlement in its litigation, one that would affect some 1.8 million policies dating back to 1901.

Unity Mutual claims that just under 12 percent of all its policies were priced according to race. Company vice president Joseph Masella estimates that the rates it charged "non-Caucasians" were anywhere between 1 and 37 percent higher than the rates it charged whites, with an average he estimates "between 15 and 20 percent."

"Like hell," says one insurance broker who has sold life insurance in Harlem for over 50 years. "Black people were charged more like 25 to 35 percent more than Euros, and as high as 60 percent. All the companies were overcharging," says the broker, who has asked that his name not be used because he is still in the business. "Unity and Columbian and MetLife all had two price books, a higher one for blacks. And the other big companies didn't even want to sell to us." When told that Columbian Mutual denies it ever charged different rates, the broker says "Maybe they charged just one rate, but all the other companies based their rates on three presumptions: First, that black people don't make as much money. Two, that they weren't as careful healthwise, and were more likely to get sick. And three, that their life expectancy was about 10 years less than whites."

The discrimination against minority policyholders is most easily seen in so-called "industrial policies," whose premiums were often paid on a weekly or monthly basis. Industrial policies seemed cheap to low-income consumers, with frequent payments that were often under a dollar. In most cases, though, the policies would ultimately pay out much less than they cost—especially when minorities screwed up the insurance industry's actuarial tables by living long, healthy lives. "Basically, the industrial policies were a way to prey on poor people," says Timothy Blood.

The suit against Unity Mutual claims the company also trained its agents to develop relationships with customers to sell "burial protection," manipulating the emotions of customers "by instilling in, or playing to, a sense of shame in leaving their loved ones without funds to pay for a funeral at the time of their death." Unity's Masella responds by saying that life insurance provides everyone, not just the poor, "with a dignified way to bury loved ones."

But Blood concedes that by industry standards, Unity Mutual has been cooperative in the investigation into its discriminatory practices. A source at Unity claims that company executives once discussed paying back Naomi Kelly's overcharged premiums, but because of a "miscommunication" with the lawyers bringing the lawsuit, they never followed through.

Naomi Kelly's policy will in all probability (and by Unity Mutual's own admission) pay her only a few hundred dollars more than she paid for it. When asked what she will do with her extra cash, Lilly begs her mom not to say she'd take it to Atlantic City; besides, she reminds, it's the principle of the thing.

Naomi Kelly smiles, saying, "Back when I bought it, anything was a lot of money. But now, a couple of hundred dollars, it's not really much, is it?"

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