How Insurance Companies Used Bad Science to Discriminate

Insurance is a cornerstone to building wealth but historically it’s been denied to Blacks. After Prudential discounted the worthiness of Black policies in 1881, nearly all insurance companies began discriminating against Blacks. The stated reason was Black mortality was significantly higher than whites’. That was true across all ages and generally holds true even today. The few companies that would sell policies to Blacks only offered a limited range of plans, mostly industrial insurance. Although insurance companies aren’t allowed to explicitly turn away Blacks, the past lives on, in the present. 

There was a brief period when Black could generally purchase life insurance. That changed in 1881 when Prudential, one of the nation’s largest insurers, announced what would become the new industry standard: policies held by Blacks would be worth one-third less than those held by whites. Frederick L. Hoffman, a Prudential statistician, was largely responsible for the new policy. Using faulty science, Hoffman’s analysis indicated that Blacks had a higher mortality rate than whites. That disparity meant, in effect, claims paid out to Black policyholders were disproportionately high. Hoffman weaponized “science” to further argue the inferiority of Blacks, predicting that African-Americans would die off like indigenous tribes of the Americas. Hoffman’s analysis started a trend that the rest of the industry gladly followed. 

Hoffman’s findings were skewed by bad inputs at best and racism, at worst. Most of the Black health statistics he used were pulled from Civil War-era studies of Black and white soldiers. Further, legitimate differences in health outcomes between Blacks and whites at the time were rooted in poverty and the lack of access Blacks had to healthcare. Even so, Hoffman was not wrong in concluding that Black mortality did differ from that of whites. The insurance industry simply responded by denying Blacks the wealth-building power of insurance. Black insurance companies, however, eventually brought a solution and began creating wealth in the community. Black insurance companies knew what the genuine disparities were but knew how to still provide service when others wouldn’t. 

As Black mortality rates improved and integration became the norm, white companies again started servicing Blacks. Black mortality today, however, still lags behind whites’. In 2004, for example, there were 1200 more deaths per 100,000 Black men in urban counties, compared with white men. In 2007, there were 1900 more deaths per 100,000 Black men in rural-adjacent areas, compared to white men. Compared with white women, about 650 more deaths per 100,000 Black women occurred in urban areas in 2002. In that same year, 782 more deaths per 100,000 Black women occurred in rural-adjacent counties. These data, to the untrained eye, serve as the basis of insurance discrimination. That’s why Black insurers are and have always been so important in caring for Black families.