Insurance Standards Group Reviewing Practices That May Disenfranchise Minorities

0

The National Association of Insurance Commissioners said Thursday it would begin looking into the practices employed by U.S. insurance companies that disenfranchise minorities.

“Within the NAIC, we’re seeing unprecedented discussions between our members and stakeholders on race and its role in the design and pricing of insurance products as well as our collective need to improve diversity in the insurance sector particularly in senior leadership roles,” association president Ray Farmer said in a press release. “It is the duty of the insurance sector to address racial inequality while promoting diversity in the insurance sector.”

However, some within the insurance industry are not keen on this level of review. Insurance Information Institute Chief Executive Sean Kevelighan said it would be better to focus purely on increasing diversity and this sort of review would be a waste of resources.

The NAIC is one of the primary standard-setting groups in the U.S. that craft proposals for states to decide on whether to adopt. In turn, these are the guidelines state insurance departments and companies like State Farm and Geico have to adhere to while operating within states that adopt those proposals.

“We will look at everything in the insurance-regulatory system to make sure there are no unintended biases in there,” Farmer told the Wall Street Journal. These include finding any sort of biases in pricing models, underwriting, and more. Farmer said the death of George Floyd in Minneapolis “shined the spotlight on everything” and it was now their responsibility to address these issues directly.

One such practice highlighted is how premium rates are decided for insurance customers. Companies typically determine rates by looking at the customer’s credit-score, employment history, and education. Consumer advocacy groups have argued this type of model works against Black and Hispanic Americans who often have a lower average credit score and don’t receive as many opportunities for higher education or employment.

“Insurance credit scores reflect and perpetuate historic racism and unfairly discriminate against Black and Hispanic communities,” Center for Economic Justice Executive Director Birny Birnbaum said.

This was only one piece of the puzzle as Farmer also said the group would look into ways to increase employment opportunities for minorities at various insurance organizations.

“Our regulatory system and insurance in general is a reflection of the society it aims to protect, and while state insurance regulators have worked to eliminate overt discrimination and racism, we all have been increasingly aware that unconscious bias can be just as damaging to society,” association CEO Mike Consedine said in the press release. “I applaud the commitment of our membership in their decision to embark on this important work.”

However, some within the insurance industry are not keen on this level of review. Insurance Information Institute Chief Executive Sean Kevelighan said it would be better to focus purely on increasing diversity and this sort of review would be a waste of resources.

“It would be a much less productive use of time and resources to revisit widely used and highly regulated ways to price risk which have proven beneficial to all customers,” Kevelighan told the Wall Street Journal.

Farmer has not given a timeline on how long this type of review process could take.

Share.

About Author

Leave A Reply