Maryland’s insurance regulator has announced actions to settle a long-running dispute with Erie Insurance Group over a report on the insurer’s practices involving some urban agents and their insureds.

The Maryland Insurance Administration (MIA) said its market conduct examination that was actually conducted four years ago uncovered unlawful practices resulting in fewer Erie policies written and renewed in urban ZIP codes, particularly in Baltimore City.

The insurer continues to strongly object to the report and says claims that it unfairly discriminates “couldn’t be further from the truth.”

The examination of conduct from 2016 to 2020 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. The MIA noted that under state law, once an insurer establishes its underwriting eligibility guidelines and rates and files those rates with the state, it cannot refuse to issue a policy to anyone who meets those guidelines.

The MIA 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 regulator found that this reliance on loss ratio primarily impacted insurance agents serving urban areas such as Baltimore.

The MIA said it is taking “corrective actions” against Erie as a result of its findings.

Erie maintains that it did not violate insurance laws and disagrees with the findings in the report. In a detailed written response, Erie wrote that the MIA report claims that its encouragement of its appointed agents to adopt their own “front-line underwriting” guidelines led the agents to turn down qualified business that was considered likely to be unprofitable. Erie stated it “denies that encouraging its agents to be profitable violates Maryland law.”

Erie has chosen to not appeal the report. “Erie will refocus its resources on serving Erie’s Maryland policyholders and appointed agencies, rather than on expensive and distracting litigation with the administration,” the company stated.

The original dispute involved the handling of four administrative complaints filed with MIA alleging Erie engaged in discriminatory practices against low-income and minority communities in the Baltimore area. The complaints were filed by Baltimore Insurance Network, Burley Insurance & Financial Services, Ross Insurance Agency and Welsch Insurance Group.

The agencies said they were restricted from offering Erie’s policies to residents of primarily Black communities. They alleged that Erie threatened and penalized them for challenging what they maintain are Erie’s discriminatory redlining policies. The agencies claim the retaliatory actions hurt their business.

Early in the dispute, the insurer maintained that the MIA has not afforded it adequate opportunity to respond to the complaints by agencies. The insurer also claimed that MIA violated state law by disclosing confidential business information.

The Fourth Circuit Court of Appeals found that state law afforded Erie adequate opportunity to raise its constitutional claims in the administrative hearings and subsequent state court review. The court also found that Erie did not prove that MIA’s actions were motivated by bias.

While Erie has agreed to address the matters raised in the report, it insists the entire process has been unfair and the findings are wrong. “We find discrimination of any kind abhorrent and inconsistent with the values that have guided our business for 100 years. Erie Insurance does not discriminate in its business practices and the report’s factual findings clearly do not support those claims,” stated Matthew Cummings, communications director for the insurer.

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