$35 Million Settlement Agreement Reached with Unitrin over Discriminatory Life Insurance Rates

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Springfield, IL -- Illinois Director of Insurance Nat Shapo announced today that the Illinois-based Unitrin Insurance Group has agreed to a guaranteed $27 million national settlement over charges of racially discriminatory rating practices in the sale of life insurance. The Unitrin affiliate insurance companies included in the settlement are United Insurance Company of America (IL), Union National Insurance Company (LA), and The Reliable Life Insurance Company (MO). Shapo served as the lead regulatory negotiator for a five-state group which acted on behalf of all the members of the National Association of Insurance Commissioners (NAIC). The other members of the group were Florida, Louisiana, Missouri, and Texas. The settlement also includes $6 million in relief for beneficiaries who never received a death benefit to which they were entitled.

The settlement affects small amount life insurance policies, commonly known as industrial life or burial insurance, which were sold at higher premiums to African Americans. Most such policies were sold prior to 1970, but race-based premiums were collected to the present day. Restitution will be offered to an estimated 467,000 policyholders or beneficiaries nationwide who previously collected death benefits, surrendered their policy or were still paying premiums after 1960. The weighted average benefit increase factor per policy is about 26.7 percent. The actual dollar amount will vary by face amount, plan of insurance, issue age and, in some cases, issue year.

The agreement also imposes a $2.25 million regulatory requirement on top of the settlement's restitution provisions: a fine of $1.25 million and an additional $1 million in benefit enhancements for policyholders. The $1 million benefit enhancement will be shared by the approximately 59,000 current premium-paying consumers in the settlement class, and 8,500 beneficiaries of previously unpaid benefits as described below.

"The benefit enhancement was a way that all of us – the companies, the regulators, and the class counsel – could put our money where our mouths are for consumers," Shapo said. "The regulators were willing to accept a hybrid regulatory solution as opposed to just the punitive sanction of a fine; the company committed an extra $1 million to their consumers; and the plaintiffs' attorneys waived collecting a fee for this portion of their clients' receipts." The enhancement will amount to approximately $15 for each affected member of the settlement.

The fine would be shared by various states according to their number of policyholders included in the settlement. Illinois' share is $24,683 based on 7,689 policies with face amounts totaling nearly $4.5 million.

Shapo said the regulatory agreement is the culmination of about two years of investigation and subsequent negotiations with the companies, other insurance regulators, and private attorneys representing policyholders in a class action lawsuit. "I was amazed and deeply distressed when I found out there were consumers in modern America who were paying higher premiums because of the color of their skin, and I believe that we have secured a just recompense for them," Shapo said. "The Unitrin settlement underscores the commitment of state insurance regulators to hold life insurance companies accountable for unacceptable pricing practices. In addition to offering fair compensation to those who were victims of racial discrimination, we're doing our part to free our society from the unacceptable practice of grouping Americans by race."

In addition to race-based premiums, the Unitrin settlement addresses the issue of unpaid death claims on multiple policies. "In the small-faced policy market, it is not unusual to sell more than one policy to the same person," Shapo said. "Unfortunately, our examinations showed that companies have frequently failed to match all the policies when the insured dies, resulting in unpaid death benefits when claims weren't submitted on all policies." Unitrin will provide an additional benefit estimated to be $6 million, representing the value of the previously unpaid benefits, plus statutorily required interest of 6%.

The regulatory agreement also ensures that Unitrin will conduct a diligent search to ensure that legitimate death claims are properly paid and that procedures will be established to identify multiple policies on any death claim going forward. "This problem was race-neutral, but is quite significant. There is no more fundamental regulatory concern than the payment of a benefit on a policy for which a consumer diligently paid premiums for years," Shapo said.

"When I contacted Unitrin two years ago, they indicated that they wanted to reach a settlement that would provide appropriate relief to policyholders. While it is most regretful that these practices persisted for so long, I appreciate the company's cooperation during this process," Shapo said.

The settlement has been approved by all members (IL, FL, LA, MO, and TX) of the five-state working group. "Commissioners Gallagher (FL), Wooley (LA), Lakin (MO), and Montemayor (TX) and their staffs were essential partners in this process, which was a model of cooperation among the states," Shapo said. The settlement also is contingent on approval by the five other states (CA, GA, MS, NC, and SC) with the most written premium at year end 2000. Those states have 45 days to approve the settlement. The remaining 33 states with eligible policies and the District of Columbia will have 45 days to consider joining the settlement.

Unitrin policyholders will be notified by mail of the settlement options available to them, including:

For Racially-Underwritten Insurance Policies:

• Class members may choose either an increased death benefit for affected policies that are still in force or a cash refund instead of the increased death benefit; and
• Unitrin will reduce the future premiums, if any, that may become due on those policies.

• Beneficiaries or heirs of racially underwritten policies on which a death claim or endowment was paid after 1960 will receive a supplemental cash payment.

• Persons who owned racially underwritten policies that were premium-paying after 1960 but have since lapsed or terminated are also eligible to make a claim for benefits.

UNITRIN SETTLEMENT OUTLINE

• An estimated 467,000 policies are eligible for relief under the Stipulation of Settlement.

• An estimated 249,000 policies will receive automatic relief.

• The Settlement provides guaranteed payouts amounting to $27 million, itemized as follows:

• At least $12.25 million will be paid for Increased Death Benefit Relief and Cash Refund Relief for policies that are premium-paying on the Implementation Date. This relief is not capped.

• An estimated $4 million will be paid for future Premium Reduction Relief. This relief is not capped.

• At least $5.25 million will be paid for Increased Death Benefit Relief and Cash Refund Relief for in-force policies that are not premium-paying on the Implementation Date. This relief is a floor and not capped. Any unused portion will be used to increase Death Benefits of Class Members who have in-force policies.

• At least $5.5 million in Estates and Matured Life Policy Relief will be paid. This relief is a floor and not capped. Any unused portion will be used to increase Death Benefits of Class Members who have in-force policies.

• The settlement also provides for an additional benefit that is not guaranteed but is estimated at $6 million for Unclaimed Benefits paid during the course of the Settlement.

• The above $33 million total is augmented by a $1 million Regulatory Enhancement that will be distributed by the companies to premium paying policyholders entitled to Relief and persons entitled to Unclaimed Benefit Relief under the Settlement.

• The Regulatory Settlement Agreement also provides for a Sanction Amount (fine) totaling $1.25 million to be distributed among Participating States based on policy counts by state with a minimum payment of $1,000.00 to any Participating State.