Diversity, equity, and inclusion (DEI) continue to be a concern in our society, and the issues it presents extend beyond the communities where we live to the places and industries where we work. In 2021, AAIS Director of Government Relations Lori Dreaver Munn presented at the Association of Insurance Compliance Professionals (AICP) Annual Conference on a more nuanced concern – improving DEI in insurance products.

Discrimination in Insurance

A 1999 study reported in The Washington Post identified insurance discrimination occurred when seeking renters insurance in Washington D.C. Out of 150 calls made to 60 insurance offices the report uncovered discrimination 45% of the time when comparing Black and Latino to white policyholders. Studies have found that this also occurs when trying to purchase other types of insurance, such as replacement costs in homeowners insurance. In the past, forms of discrimination within insurance included:

• Redlining: A physical red line was drawn on a map outlining urban areas as “high risk.” The 1936 Fair Housing Administration Underwriting Manual used redlining to include segregationist policies. This led companies to not write policies or charge higher rates in “red-lined” areas. It’s now illegal, but significant disparities remain in the auto insurance market.
• Credit-based Insurance Scores: Credit scoring disproportionately harms those who have been discriminated against and reinforces the much bigger problem of bias facing our country today. For millions of drivers, credit-based pricing poses an untenable barrier to economic advancement.
• Discriminatory Underwriting: In Texas, auto underwriting guidelines required applicants to have previous insurance, which many minority groups did not. In homeowners, underwriting guidelines were based on the age and value of the home. It was determined this acted as a proxy for racial discrimination since rates were based on the home location.
• Lack of Representation: There’s a lack of minority representation in the insurance industry and regulatory agencies. This limits exposure, experience, networking, and education within minority communities.
• Climate Change: Another societal issue, albeit an indirect one, can also prompt discrimination. With climate change forcing a rise in insurance premiums, affordability becomes a real concern that could price out low- and average-income households, which tend to be more diverse.

Finding a Solution

The industry – like society – is working to rid itself of discriminatory practices, but it will not happen overnight. State regulators are leading the way for fairness in insurance. In New Jersey and Michigan, advocates are pushing for legislation that would ban insurance companies from asking about credit score, education level, or occupation when determining a customer’s premium. In the state of Washington, Insurance Commissioner Mike Kreidler has proposed a similar ban around credit scoring, but it continues to be met with challenges.

In California, Insurance Commissioner Ricardo Lara is urging leaders to lead with purpose and promote a greater opportunity for small and diverse business owners in the state's insurance market. “Diversity means business and I mean business about diversity,” said Lara. He has placed a new focus on the Department’s longstanding Insurance Diversity Initiative to address systemic racism and bias through collaboration and cooperation. “Representation matters. That’s why it’s crucial to see leaders who are leading purposefully…delivering value to the customers they serve and the society in which they co-exist.”

On the activism front, Lloyd’s of London has apologized for its role in the Atlantic slave trade of the 18^th and 19^th centuries and will fund opportunities for black and ethnic minority groups. There are also groups like CEO Action for Diversity & Inclusion that comprise many CEOs within the insurance industry working together to change discriminatory cultures.

Want to hear more? Listen to this AAIS Pulse segment featuring perspectives on DEI from leaders at the National Association of Insurance Commissioners.