A Growth Market For The Taking

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African-American consumers could prove to be the U.S. life insurance industrys stealth growth market.

The average African-American earns less and has less wealth than the national average, but the averages are misleading.

Although some African-American households continue to struggle, the 1.7 million African-American households that earned more than $75,000 in 2000 combined for a total of $198 billion annual income, according to the Census Bureau. Affluent African-Americans combined income is about the same as the national income of Switzerland.

The 43,000 African-American households in the Census Bureaus top income category, for households with annual incomes over $250,000, brought in an average of $556,965 per year. That compares with an average of just $465,786 for whites in the same category.

Furthermore, African-Americans with annual household incomes over $50,000 have much warmer feelings toward life insurance and related products than the general population, according to a 2001 survey commissioned by Ariel Capital Management Inc., Chicago, and Charles Schwab & Company Inc., San Francisco.

Seventy-one percent of the African-Americans interviewed owned life insurance, compared with 62% of the whites.

Thirty-four percent of the African-Americans owned fixed or variable annuities, compared with 26% of the whites.

Twenty-two percent of the African-Americans said they have the most assets at life insurance companies, compared with 10% of the whites.

Kareim Cade, a partner at M.L. Garland Hill Agency, Detroit, an insurance agency that runs worksite marketing programs, has no complaints about his target market, which consists largely of African-American government workers.

“Its definitely easy to drum up business,” Cade says. “Theres plenty of money there.”

Even today, “those markets are out there, and they are underserved,” says Mitzi Jackson, marketing coordinator for African-American market development at AFLAC Inc., Columbus, Ga.

But Jackson and other life insurance company executives get even more excited when they talk about Census Bureau projections for the future.

The “middle” projections predict that African-Americans will make up 15% of the U.S. population by 2050, up from 13% today, and that non-Hispanic whites will make up only 53% of the population, down from 71%.

AFLAC set up its 10-year-old multicultural development unit mainly because of demographic projections, Jackson says.

Life insurers were not always as eager to sell to African-Americans.

Years ago, insurers shied away from African-American applicants because of a combination of racism, high general African-American mortality rates, and fear of the malaria, yellow fever and other diseases and conditions that increased mortality rates for both the white and African-American residents who lived in the South.

Northern state legislatures began trying to outlaw race-based life insurance pricing as early as the 1880s. Life insurers responded by pointing to the mortality tables.

In 1900, the Census Bureau reported that the average white male had a life expectancy of 46.6 years at birth, while the average African-American male had a life expectancy of only 32.5.

For decades, African-Americans struggled to fill in the gaps by starting insurers such as Atlanta Life Insurance Company, Atlanta, and North Carolina Mutual Life Insurance Company, Durham, N.C., that would sell them enough life insurance to cover the cost of funerals.

The companies sold “industrial life policies,” which were designed so that agents could collect the premiums directly from the policyholders on a weekly basis.

The mortality gap has narrowed considerably over the years.

The U.S. Department of Health and Human Services reported in “Health, United States, 1998″ that 45-year-old African-American men in households with annual incomes over $25,000 per year have an average life expectancy of 32.6 additional years, compared with an average life expectancy of 33.9 additional years for white 45-year-old men in the same income group.

At age 65, both white men and African-American men in the over-$25,000 category can expect to live to age 82.

Besides, says Jerald Tillman, owner of J.L. Tillman Insurance Agency, Sharonville, Ohio, the days are long gone when life insurers could get away with making race an official part of the underwriting process.

“For the most part,” Tillman says, “the underwriters dont know whether the applicant is black or white.”

Today, U.S. life insurers are happy to sell life insurance to all types of customers.

Affluent African-Americans interviewed say they believe they are getting their fair share of letters and calls from financial services advisors.

But, for outsiders, measuring just how well the African-American life market is doing is difficult, because many life insurers and life market research organizations avoid collecting data about the race of customers and survey participants.

At AFLAC, “we dont really think thats necessary,” Jackson says.

Some life insurers worry that collecting information about consumers race might be perceived as racist.

Other life insurers group African-Americans together with the general population, rather than setting up special marketing operations, for the obvious reason that African-Americans speak English, according to a life marketing expert who requested anonymity.

For the insurers themselves, the relative lack of detailed market research data on African-American financial services consumers is not much of a handicap, says Tariq Khan, an assistant vice president who works in the multicultural marketing unit at MetLife Inc., New York.

“I have never in my life felt that we had all the information we needed about a particular community,” Khan says. But he adds that “the local offices are in the best position to serve their communities.”