Seeking ‘right’ customers, insurer is accused of discrimination

When regulators in Mary- land said last spring that the small company Erie Insurance had illegally avoided selling policies to people in mostly Black neighborhoods, Erie had a ready answer: It said it was being singled out for sim- ply doing business as usual.

The insurer, based in Penn- sylvania and known for sell- ing cheap auto and home- owner policies, then took an unusual step. It sued the Mary- land Insurance Administra- tion, arguing that the regulator was unfairly attacking its “frontline underwriting” practices — an approach in the insurance business requir- ing agents to consider subjec- tive factors when choosing customers.

Maryland regulators had begun investigating Erie’s busi- ness after independent agents who sold its policies accused Erie of punishing them for selling policies to Black and Hispanic customers, most of whom lived in densely popu- lated parts of cities such as Bal- timore where the insurer said there was too much risk. Often, these are neighborhoods in which Black Americans and other minority groups were forced to live throughout much of the 20th century, because of laws and racist lending prac- tices known as redlining.

In May, Maryland officials concluded that Erie’s practices were “designed to reduce business, and did reduce business, in dense urban areas wi h high minority populations,” and they ordered the company to pay agents compensation that they said had been improp- erly wi hheld. Maryland is also conducting a broader review of Erie’s underwriting meth- ods, even as Erie has pushed back in federal court.

“We are confident that the business goals and service expectations we set for all our agents are appropriate and that our underwriting prac- tices comply with all applica- ble state insurance laws and regulations,” an Erie spokesperson, Matthew Cummings, said in an email, adding that the accusations against it are false. A spokesperson for the Maryland Insurance Adminis- tration declined to comment.

The dispute reveals how a long-used insurance industry technique, ostensibly aimed at managing risk, can open the door to bias. Rather than relying on a fixed set of data points to determi e wh ch customers qualify for which pol- icies and at what price, front- line underwriting puts the onus on agents to determine who is worthy of an insur- er’s services. As they eval- uate a customer, agents are expected to decide whether a potential customer seems honest or reliable, or judge how tidy or well maintained their home is.

“If you have underwriting happening at the level of the individual agent, there’s no way to review that and it’s much more likely that you’re going to get bias,” said Dan- iel Schwarcz, a professor at the University of Minnesota Law School who focuses on insurance law and regulation. “There are all kinds of con- scious and unconscious biases involved.”

Insurers have also been accused of discriminating against Black and Hispanic customers in other ways. A lawsuit filed in federal court in Chicago accuses State Farm, the nation’s largest insurer, of racial bias after a study showed Black customers waited lon- ger, filed more paperwork and dealt with more visits from claims adjusters than white customers did when trying to make an insurance claim.

But the accusation against Erie is that its policies kept Black and Hispanic home- owners out of its customer rolls in the first place.

“They had us create sepa- rate guidelines to weed out some of the people that they didn’t want us to write in inner cities,” said BJ Borden, a Bal- timore agent who is one of seven people claiming that

Erie wrongfully wi hheld compensation or terminated their agency contracts in Maryland.

Borden said that over several years, Erie managers had punished him for selling policies to Black Baltimore residents by docking his commissions and threatening to cancel his sales contract entirely.

Maryland’s case also shows the patchiness of insurance regulation, which varies from state to state. Maryland law requires insurers to sell policies to all customers who want

buy them and who meet the financial guidelines the insurers have formally disclosed to regulators. But almost no other states — including the 11 other markets in which Erie operates — have that rule, granting Erie and other insurers broad powers to narrow their customer pool.