How the decline of Black-owned insurance firms widened the wealth gap
How the decline of Black-owned insurance firms widened the wealth gap
Both the ongoing demonstrations for racial justice and the COVID-19 pandemic have focused national conversations on the generational wealth gap between Black and white Americans. A slice of that conversation? Insurance ownership.
“Marketplace” host Kai Ryssdal spoke to Robert Weems, a professor of business history at Wichita State University in Kansas, about the history of Black-owned insurance agencies and the ramifications of their decline on Black wealth and communities. The following is an edited transcript of their conversation.
Kai Ryssdal: Black-owned insurance companies started their operations in a deeply segregated America. How did they do as a business proposition?
Robert Weems: Well, as a business proposition, these companies were able to find a good niche in the insurance marketplace. And I think an indication of just how viable these companies were in their heyday was that we know, for instance, during the Great Depression, that pretty much signaled the end of a majority of African American owned banks, but most of the African American insurance companies were able to survive the Great Depression pretty much intact.
Ryssdal: Yeah, but you look around today, 80 years on from that or whatever it is, and there aren’t that many Black-owned insurance companies around. What happened?
Weems: Well, interestingly enough, the improving social condition of African Americans with the civil rights movement caused large insurance industry giants to reconsider their discriminatory practices against African Americans. We saw the industry giants aggressively pursue the African American consumer market. And from the standpoint of African American consumers, it became a literal status symbol that they were being marketed the same types of policies that companies like Prudential and Metropolitan Life sold to their white clients. And another part of the story was that they literally recruited top Black agents from Black companies to sell policies in the African American community. And as a real irony in this, especially going back to the context of African Americans viewing equitable policies as status symbols, we literally saw large companies able to profit from previous discriminatory practice.
Ryssdal: Much has been made the last, you know, number of months about the racial wealth gap in this country, right? This I imagine somehow plays into that. First of all, am I right? And second of all, could you explain how?
Weems: Yeah, you’re absolutely right. In fact, when we look at African American insurance companies, we’re talking about companies that had, you know, millions of dollars in assets, had hundreds of millions of dollars of insurance in force. And when these companies disappeared from the, you know, the landscape of American business, necessarily this had a negative impact on wealth creation in the broader African American community. One of the beauties of the insurance business, especially from the standpoint of profitability, is that at any given moment in time, there are more people alive paying premiums then are people dying and companies have to pay death benefits. So one of the things that insurance companies have to deal with, unlike a lot of other businesses, is how do they disperse surplus? And historically, African American insurance companies dispersed a lot of their surpluses into the African American community in terms of mortgage loans and other types of capital needs of African American communities. And I would argue that is not coincidental that as we’ve seen the decline and disappearance of African American insurance companies, we’ve seen a simultaneous decline in the infrastructure of ambience of African American communities across the country.
Ryssdal: Let me ask you if I could on the way out here a question about this moment. And I ask it of you with all your study of business history in this economy: What are your hopes for Black capitalism coming out of this moment?
Weems: Well, my hope, first of all, is that when we look at, you know, African American businesses, you know, why they are some very large and very influential Black enterprises, a significant number, just as in the broader economy, or small businesses, and unfortunately, when we look at, you know, African American small-owned businesses, a lot of these entities really haven’t gotten access to, you know, the PPP program and other things put in place to help small businesses to survive. So, you know, one of my concerns is that hopefully there will be a Black business community in place a year or two or five years from now considering, you know, all the pressure that small businesses in general and small Black businesses in particular are dealing with at the present moment.
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