Maryland Insurance Administration Takes Action Against Erie Insurance for Discriminatory Business Practices

The Maryland Insurance Administration (MIA) has taken corrective actions against certain insurers of the Erie Insurance Group after a market conduct examination uncovered unlawful practices resulting in fewer Erie policies written and renewed in urban ZIP codes, particularly in Baltimore City.

The examination resulted in a Market Conduct Examination Report. As stated in the report, the examination found that Pennsylvania-based Erie encouraged insurance agents affiliated with its companies to engage in a practice they called “front line underwriting," in which the agents were encouraged to reject otherwise qualified applicants who they deemed might be unprofitable for the company. Once an insurer establishes its underwriting eligibility guidelines and rates and files those rates with the MIA, it cannot under Maryland insurance law refuse to issue a policy to anyone who meets those guidelines.

The MIA's examination also found that Erie agents were penalized if their books of business resulted in a certain loss ratio, regardless of whether their customers qualified for Erie coverage. The penalties included reduced commissions and termination. The MIA found that this reliance on loss ratio primarily impacted insurance agents serving urban areas such as Baltimore.

As part of the Market Conduct Examination Report, the MIA and Erie agreed to a consent order with corrective actions. Under the order, Erie must: 

• Cease and desist from all unlawful practices, including front line underwriting and direct or indirect use of adverse loss ratios, except as permitted by law.
• Submit a corrective action plan for review and approval to the MIA.
• Submit a list of all agent terminations and commission reductions, with an explanation of the actions, and prepare an efficient process for resolving any adverse findings concerning the proprietary of those actions.
• Pay an administrative penalty of $400,000, due within one year of the order. If the MIA finds that the company is in continued compliance with the order, $200,000 of the penalty will be waived.

The investigations began in 2021, based on complaints from four insurance agencies about Erie's practices. In 2023, the MIA issued four public determination letters stating that Erie had violated Maryland state insurance law.

Before the Market Conduct Examination Report was released, Erie filed due process complaints in U.S. District Court. The MIA prevailed in that case, and Erie appealed to the U.S. Fourth Circuit, which ruled in favor of the MIA in June 2024. The MIA then entered into settlement discussions with Erie, resulting in the consent order. Erie maintains that it did not violate the Insurance Article but agreed to the directives and corrective actions in the report.

Read the March 13, 2025 MIA article.

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Thursday, September 28, 2023 at 12 pm - 2 pm or 5 pm - 7 pm Attendee Zoom Link: https://www.zoomgov.com/j/1603802898 Dial-in: (646) 828-7666 Webinar ID: 160 380 2898  The Maryland Insurance Administration is opening our Virtual Disaster Center to help anyone with insurance related issues or questions about damage from recent weather events. Registration is not required. All are welcome to attend. To view the flyer, please click here.

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 Insurance Discrimination in Maryland

Maryland Finds Erie Insurance Illegally Rejected Baltimore Auto Customers in Minority Neighborhoods

On May 24th, the Maryland Insurance Administration (MIA) has ruled that Pennsylvania-based Erie Insurance racially discriminated by engaging in insurance “redlining” of predominantly Black neighborhoods in Baltimore. Through the Baltimore Insurance Network, four Baltimore-area insurance brokers had accused Erie in separate complaints filed in 2021: Baltimore Insurance Network LLC of Bowie, Ross Insurance Agency of Windsor Mill, and Welsch Insurance Group of Baltimore. All contracted or had contracted with Erie as agents to sell auto insurance policies. A fourth brokerage, Baltimore-based Burley Insurance, filed a similar complaint. The state’s ruling also said Erie penalized brokerage firms that failed to engage in discriminatory practices by reducing commissions or terminating contracts.

Kobi Little, NAACP Baltimore president, said the policies and practices exposed in the case are “prima facie evidence of institutional racism and structural inequity. This is corporate policy violence and it is a root cause of the physical violence and economic decay that we see in urban centers with significant Black populations. The impact is devastating in terms of the economic loss suffered by the firms serving urban markets and those in urban markets who are denied coverage. This is modern-day redlining and this case is just the tip of the iceberg.”

The MIA found that Erie unlawfully canceled or rejected business from brokers based on race or for other discriminatory or arbitrary reasons. It also found Erie unlawfully canceled or changed agreements for qualified applicants based on “adverse loss ratio,” a measure of an insurer’s profitability. The spokesman for Erie - with nationally has over 6 million home, auto, life, and business policies - disagrees with the findings. Erie has requested a hearing with the agency and expects to “defend our company against these claims.”

The state’s investigation discovered that because Erie’s auto insurance business in Maryland was not profitable, it kept its broad guidelines and set a secondary layer of eligibility standards that agents should use to reject qualified applicants (“front line underwriting”). The state is continuing a broader investigation of Erie’s market practices to determine they are part of a larger pattern of discrimination. 

The original complaints said Erie refused to underwrite policies based on a potential client’s race, ethnic origin, neighborhood and/or socioeconomic status. Baltimore Insurance and Welsch said that Erie urged them to not sell policies to people in Baltimore with “city sounding names.” Baltimore Insurance Network said it was told by an Erie branch manager to “place those people elsewhere, I don’t care where, just not with Erie. They don’t fit Erie’s appetite. Find better people.” That branch manager also told Baltimore Insurance that it was “devaluing the brand” by writing insurance policies for people in predominantly African American neighborhoods, and that the brokerage had to “understand Erie’s appetite.” Likewise, Welsch Insurance Group’s Thomas A. Welsch was told to get his business “from somewhere else.” Welsch’s contract with Erie was terminated in August 2019, citing poor underwriting practices and unacceptable policyholder service.

Baltimore Insurance said in the complaint it was told to reduce its sales by 30% by rejecting applicants who qualified for coverage and were mostly Black and living in inner-city neighborhoods. Erie required the brokerage to include criminal record checks for applicants, most living in low-income neighborhoods, though such checks were not part of Erie’s underwriting standards or the broker’s training. The attorney for Baltimore Insurance said in his client’s case alone, “these are hundreds if not thousands likely affected members of the public who Erie rejected based on discriminatory practices that the insurance administration has found to be unlawful.”

The MIA ordered Erie to calculate and pay the agencies all amounts in commission that had been withheld between December 2019 and May 2023 when Erie had notified the insurance administration it would restore commissions. Erie works with 13,500 licensed agents who serve customers across the company’s territory, Cummings said.

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Sources

Read the June 6, 2023 Baltimore Sun article.

Read the June 1, 2023 Baltimore Banner article.