Church confronts insurer over controversial life-policy rate increase

The case reflects insurers’ increasing acceptance of a previously taboo practice

Church confronts insurer over controversial life-policy rate increase
A church in the US is accusing an insurance company of using race as a basis to raise rates on old policies that cover its churchgoers.

In 2004, LA-based Praises of Zion Baptist Church got help from investors to take out policies for 2,400 churchgoers who mostly couldn’t afford them, reported the Wall Street Journal. Part of a once-hot trend known as “investor-owned” life insurance, the policies let investors pay the premiums for people who aren’t their relatives.

The policies the church got each provided a US$275,000 death benefit, with US$225,000 going to the investors, US$35,000 to be used for church-related social-service programs, and US$15,000 going to the beneficiaries of insured congregants, most of whom were African-American. In 2013, Transamerica Life Insurance Co., the company that sold them the policies, raised the rates by 50%.

According to the Journal, raising rates on old policies was traditionally frowned upon in the insurance industry, but it’s becoming more prevalent as companies struggle against a decade of severely depressed interest rates. Invested premiums, traditionally in bonds, have long lagged expectations. This has led at least half a dozen prominent insurers to hike prices in over the past few years, according to financial advisors.

In a lawsuit against Transamerica, Praises of Zion Baptist Church and DCD Partners LLC — which co-owns the policies — accused the firm of raising rates based on racial data. With that move, they said, policy costs have surged by US$100 million, making the program unsustainable.

Judge Christina Snyder, of the US District Court for the Central District of California, acknowledged that there is some evidence suggesting that race was a factor in the rate increases. She has allowed the case to go to trial with DCD as the plaintiff, but said her decision “should not be read to imply that said evidence is compelling.”

Snyder dismissed several claims in the original lawsuit, saying that the matter to be settled in court “is principally a contract dispute between Transamerica and DCD.” The trial will aim to determine exactly what methodology Transamerica used to raise rates; premiums based on raise have been illegal in the US for decades.

Calling the allegations “categorically false and offensive,” Transamerica said it “did not raise rates on the policies due to the race of those insured.” It said the increase is allowed under the policies’ terms and meets all legal requirements.

According to the firm, its actuary used his “training, knowledge, and experience” to review 80 to 90 death claims from the DCD church program as of 2012. Taking interest-rate expectations and other factors into account, he reportedly came up with a rate that would allow policies to prospectively break even. The 50% increase applied “to all policies of the same class,” the insurer said.

Related stories:
Half of life insurers now using automated underwriting
Australian insurers’ use of genetic information cause concern