Pennsylvania-based Erie Insurance is currently in hot water with Maryland regulators. They allege that the company has shown bias against Black and Hispanic individuals, accusing Erie of strategically avoiding selling policies to these demographics in predominantly Black neighborhoods.
Erie Insurance has countered these allegations, suggesting that their practices are standard in the industry. They highlight that they are merely being unfairly singled out.
The controversy erupted when independent agents, selling Erie’s policies, reported punitive actions against them for selling to Black and Hispanic customers. Many of these customers reside in urban zones like Baltimore. Historically, due to redlining – a discriminatory lending practice – such neighborhoods have predominantly housed Black Americans and other minority groups.
Maryland’s official stance is that Erie’s methods intentionally and effectively reduced their business footprint in densely populated urban sectors with significant minority populations. Consequently, officials in May decreed that Erie must compensate agents for the unjust withholdings.
The larger issue at hand, however, revolves around Erie’s “frontline underwriting” procedures. This method demands agents employ subjective factors when deciding on potential customers, rather than a fixed set of quantifiable data. It inherently prompts agents to make judgements on the perceived honesty, reliability, or even the tidiness of a potential customer’s home.
This practice, though intended for risk management, is prone to bias, as individual agents’ decisions aren’t easily reviewed. Daniel Schwarcz, a professor at the University of Minnesota Law School with a focus on insurance law, points out the high likelihood of both conscious and subconscious biases in such processes.
It’s worth noting that Erie isn’t the only insurer under scrutiny for racial bias. State Farm, the U.S.’s largest insurer, faces a lawsuit in Chicago. The case stems from findings that Black customers faced more challenges when claiming insurance than their white counterparts.
Erie’s specific contention, however, is more profound. It’s not just about potential biases in processing claims but whether discriminatory practices prevented Black and Hispanic individuals from becoming customers to begin with.