Last September, Lani Perkins decided that her 72-year-old mother, Pok Dong Kim, needed life insurance. Kim, a Korean-born U.S. citizen living in San Francisco, applied for a $10,000 policy from Milwaukee-based Northwestern Mutual Life Insurance Co. To her surprise, the company rejected her a month later because she did "not meet our language requirements for the ability to understand English," according to an Oct. 11, 1994, letter. "We were shocked and upset," says Perkins. In May, Kim, Perkins, and her husband filed a lawsuit, believed to be the first of its kind, against Northwestern for national-origin discrimination.

Within a month, Northwestern got rid of its English-only rule and started providing translators for non-English-speaking applicants. "The lawsuit made us recognize there may have been insensitivities in our rule that we didn't see," says spokesman Thomas W. Towers, adding that the insurer invited Kim to reapply but hasn't heard back.

FREE REIN. Kim's pending lawsuit spotlights a debate over allegations of bias in the huge life-insurance industry, whose assets are estimated at $2 trillion. Whereas lending discrimination and redlining in homeowners' and auto insurance have been under scrutiny for years, life insurance has received relatively little oversight. "Each company is free to do pretty much what it wants," says former Vermont Insurance Commissioner James H. Hunt, now at the Consumer Federation of America.

But a recent spate of lawsuits and state legislative actions suggests that life insurers might not be writing their own rules much longer. Practices being probed by state officials range from requiring applicants to speak English to denying coverage to victims of domestic violence. Many insurers defend these practices--which may protect against some risks--as business prerogatives that need no apology. But as ethnic Americans and women demand more clout in the marketplace, such policies increasingly clash with antibias standards. "From a purely business standpoint, there may be legitimate reasons to reject for race or gender," argues Kenney Shipley of the Florida Insurance Dept. "But we as a society have to say whether or not it's acceptable."

Hard evidence of discrimination is always difficult to substantiate, no less so when alleged by high-level executives. But a case settled in March contains some evidence that discrimination may routinely tinge the selling of life insurance. The lawsuit, filed by the National Association for the Advancement of Colored People (NAACP) against the American Family Life Insurance Group in 1990, contains a transcript of a 1986 conversation between a company sales manager and Milwaukee agent Rueben W. Ziehlsdorf. "Very honestly, I think you write too many blacks," the manager tells Ziehlsdorf. "Rube, you're not going to build an agency on life insurance and blacks.... You gotta sell good, solid premium-paying white people.... They own their homes." That manager was fired. "We have long had policies forbidding unlawful discrimination of any sort," says American Family spokesman Rick Fetherston.

The NAACP's case ended up focusing on charges of redlining in homeowners' insurance alleging avoidance of business in minority neighborhoods. The Madison (Wis.)-based insurer neither admitted nor denied the charges but promised in a $14.5 million settlement to boost its business among African Americans in Milwaukee and to open offices in inner-city neighborhoods.

AFFRONTED AUSSIE. Now, newer forms of alleged discrimination are coming to regulators' attention. The Texas legislature outlawed English-only rules in health insurance this May after a January, 1995, report by the state's Office of Public Insurance Counsel found that some health insurers sold policies in Texas--where 20% of the population speaks Spanish--only to fluent English speakers. "Health-insurance risk has nothing to do with whether someone speaks English," says Representative Glen Maxey (D-Tex.), the law's sponsor.

Whether English-only rules unfairly discriminate is still subject to debate. Insurers argue that non-English speakers could sue their way out of insurance and other contracts on grounds that they don't know English. "We're selling a contract, and we want people to understand the contract," says Deborah A. Beck, Northwestern Mutual's senior vice-president for new business.

Some companies have restricted sales even to English-speaking foreigners. In 1993, Government Employees Insurance Co. (GEICO) in Chevy Chase, Md., ended its practice of selling insurance only to U.S. citizens after an Australian filed suit, claiming he was rejected for homeowners' insurance in 1991. The case was settled under confidential terms this June. A federal court of appeals in Richmond, Va., had held in the same case last year that laws barring bias in private contracts covered noncitizens. But GEICO contends that auto accident rates are 34% higher for foreigners than U.S. citizens. "There was a valid business reason for the policy," says GEICO attorney Douglass Ruff. Now, "rates have to go up for everybody," he gripes.

Conflicts between underwriting prerogatives and evolving social mores have also arisen in assessing risks affecting women. The National Association of Insurance Commissioners (NAIC) is working on model state legislation to prohibit insurers from denying coverage to victims of domestic violence. The state regulators say they can document, through confidential complaints, instances where insurers have turned down applicants with histories of emergency-room visits for injuries symptomatic of domestic violence. While such medical history is significant, Utah Insurance Commissioner Robert E. Wilcox says, "it's not politically acceptable today to look at it."

Similarly, the Texas legislature challenged certain medical underwriting assumptions this June when it outlawed discrimination by health insurers of women with histories of fibrocystic breast conditions. Many life-insurance companies assign higher risk to such women. But health experts say that there is little statistical evidence that this common condition is a precursor to cancer. The industry backed the bill after reaching the same conclusion, says Will Davis, a lobbyist for Texas insurance firms.

Some companies, however, have already dropped many of these seemingly faulty assumptions in order to broaden their businesses. New York-based Metropolitan Life Insurance Co. has gone after ethnic customers since 1983 by hiring agents from different ethnic backgrounds and writing sales literature in languages such as Russian and Chinese. Ethnic customers now make up 25% of MetLife's business, up from 5% in 1983, says William Orton, director of client development.

But the public seems less tolerant than before of companies that still factor race or ethnicity into sales. "A lot of things are done on hunches, general understandings, and notions built into the industry that nobody questions," says William H. Lynch, the NAACP attorney who sued American Family. "The burden should be on companies to show the business necessity for a practice." As consumers start turning up the heat, insurers could discover that dropping outdated assumptions can be a boon to both sides.

Fighting Bias In Insurance

As ethnic Americans and women become more vocal consumers, insurers are facing some heat for alleged discriminatory practices. A few examples:

MEDICAL UNDERWRITING In June, the Texas legislature outlawed bias by health insurers against women with fibrocystic breast conditions. Many insurers had declined applicants on the basis of this common condition, which doesn't necessarily indicate cancer.

ENGLISH ONLY In May, a Korean-American woman sued Northwestern Mutual Life for discriminating against her on the basis of national origin when it declined her application because she didn't speak English. Northwestern has since ended its English-only rule.

DOMESTIC VIOLENCE After a wave of consumer complaints, the National Association of Insurance Commissioners is working on a model state law to prohibit the denial of insurance to victims of domestic violence.

By Catherine Yang in Washington

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