Madeleine O'Neill//June 1, 2023
//June 1, 2023
A Pennsylvania-based insurer used pretextual metrics to justify rejecting eligible Maryland customers in urban areas with large minority populations, the state’s insurance regulator claims.
In a letter issued last week, the Maryland Insurance Administration found that Erie Insurance unfairly penalized an insurance agency that served some of the poorest areas of Baltimore.
The MIA also is also investigating Erie Insurance’s practices through a broader “market conduct examination” that is ongoing, according to the letter.
The Baltimore Insurance Network first raised discrimination claims against Erie Insurance in a complaint filed with the MIA in 2021, according to the agency’s lawyer, Cary Hansel.
“I’m thrilled that the (Maryland) Insurance Administration saw the problem, identified it and is doing what is possible to rectify it,” Hansel said.
In general, insurers are allowed to establish underwriting eligibility guidelines and set rates based on their appetite for risk. Those guidelines are subject to regulations; they cannot be “arbitrary, capricious or unfairly discriminatory” or be based on race, sex or creed, the MIA wrote in its letter.
Maryland law allows insurers to set different rates based on geographic location because claims occur far more frequently in urban areas than in suburban or rural areas. But once an insurer has set its eligibility guidelines and rates, it is not allowed to reject plans based on “adverse loss ratio,” which is essentially a measure of profitability.
“Once an insurer establishes its underwriting eligibility guidelines and its rates, it cannot lawfully refuse to issue a policy to a person who meets its guidelines and for whom it has a filed rate,” wrote Robert L. Baron, the associate commissioner for the MIA’s Property and Casualty Division.
The MIA’s investigation concluded that Erie Insurance maintained broad guidelines and competitive rates but “embarked upon a scheme to establish a secondary layer of eligibility standards that agents were supposed to develop and use to reject otherwise eligible business that Erie did not want, because Erie considered it unprofitable.”
The administration found that Erie Insurance used pretextual criteria in place of loss ratio to justify penalizing individual agencies like the Baltimore Insurance Network.
The MIA reviewed notes and other documents obtained from Erie Insurance and concluded that the company’s private passenger auto insurance business “was not profitable in Maryland and that, rather than adjusting its underwriting standards and rating plans to decrease its risks, it decided to ‘hound’ its agents” using improper reviewing standards.
It also found that the metric Erie used “was necessarily designed to reduce its business in dense urban areas with high minority populations.”
In its complaint, the Baltimore Insurance Network alleged that Erie Insurance referred them to a more profitable agency in the “urban market” for advice. According to the complaint, the other local insurance agent told the Baltimore Insurance Network that he increased his profitability by not writing policies to people with “city sounding names.”
When the Baltimore Insurance Network’s agents said they would not discriminate against customers who were eligible for insurance coverage, Erie Insurance penalized the agency, the complaint claims.
The MIA letter does not directly address these claims, but orders Erie Insurance to pay restitution to the Baltimore Insurance Network for the reduced commissions it paid out while using improper metrics.
Erie Insurance may be subjected to additional penalties based on the findings of the MIA’s broader market conduct examination, according to the letter.
In a statement, Erie Insurance said it strongly disagrees with the determinations outlined in the MIA’s letter.
“We look forward to a full and fair opportunity to defend our company against these claims and will request a hearing so the MIA can gain an understanding of both sides of this local agent licensing dispute,” said Matthew Cummings, a company spokesman.
“Erie Insurance is proud of the strong relationship we have with our independent agents in Maryland and the 13,500 licensed Eries agents who serve customers in communities across our territory,” he said. “We are confident that the business goals and service expectations we set for our agents are appropriate and reasonable and that our underwriting practices comply with applicable state insurance laws and regulations.”T