by InsInvestigator » Wed Apr 25, 2012 09:20 pm
A few years ago, I was asked to speak at an insurance fraud seminar in Southern California. As the guest speaker, I knew my presentation would probably end the program and by that time, people would already have one foot out the door. Therefore, my task was to come up with something that would keep them glued to their seats. As I roamed around the office practicing my speech, I thought about the different types of people in my audience. There would undoubtedly be agents, brokers, agency, branch, and district managers, underwriters, actuaries, and maybe even a few SIU (Special Investigations Unit) investigators. I decided to challenge the audience to a game of ethical chess.
After I was introduced, I stood at the podium in front of roughly 220 people and proceeded through most of my presentation. As I neared the end, I decided I would make the first move.
“Here's the situation,” I began. “You are meeting with some prospects for the very first time. They are both in their mid-40s, in good health, and nonsmokers. They've come to you to discuss a possible upgrade to their life insurance portfolio. It seems that someone they trust spoke very highly of you, and they know you will do your best to provide both knowledgeable and professional service.”
“You thank them for inviting you to their home and speak warmly about the mutual friend who referred you. After a little small-talk, you ask them about any current policies they have. The wife smiles and hands you a folder containing a regular universal life policy issued just six years prior. ‘We don't want to do anything to this policy,’ she explains, ‘it was sold to us by my brother-in-law, and it will be paid-up next year. We'd just like to get another policy to supplement it, and we know that you're the guy to help us.’ Because you are an experienced agent, the skyrockets in the back of your mind begin shooting skyward. ‘Paid up in only seven years?’ you ask. ‘Yes,’ they reply. ‘Since the company our brother works for pays above-average interest rates on their life insurance policies, we'll be done paying for this policy next year.’ ‘Then, we can devote the $125 per month we currently spend on this policy to the one we plan on buying from you.’ ‘So, sometime next year,’ you confirm, ‘this policy which covers you (the husband is the primary insured) for $100,000 and you (the wife has a term rider) for $100,000 will not require any further premium payments – forever?’ ‘Yes,’ the wife replies, ‘we were very lucky to have gotten such a great deal on this policy.’ ‘Why didn't you go back to your brother-in-law for the new policy as well?’ you ask. The husband states that because his brother did so well in the company's sales division, he was promoted to an upper-management position in the company's home office. ‘Oh, by the way,’ the wife adds, ‘will the policy that you're going to show us also pay-up in seven or eight years?’”
You could have heard a pin drop in the room when I re-addressed the audience. “That's your situation, ladies and gentlemen; if these were your potential clients, what would you do?”
The very first voice I heard commented, “The policy is not that big; I'd leave and let someone else worry about it.” Following that, there was quite a bit of conversation in the room. “I would tell them that they need to pay more money,” one person said. “There's no way a policy like that will be paid off in only seven or eight years,” said another. A young lady near the front of the room asked, “Should I have them call someone at the Department of Insurance?” Several people mentioned that they would tell them the truth then replace the policy with a new plan. “I'd have them call a lawyer,” and older man stated. I vaguely heard someone further back exclaim, “Yes, but the brother-in-law is going to be pissed.”
What I had laid-out for the class was a textbook case of Vanishing Premium Fraud. In cases like this, the agent wins, the company wins, and the policy holders typically lose both their policies and all the cash value in just a few years. No matter which group they fell into, the agents in the room know it is illegal to sell life insurance this way. This type of sale is unethical, immoral, and a horrible thing to do to members of your own family.
After a few minutes, I stepped back up to the microphone. “Ladies and gentlemen, can I have your attention for a moment?” I asked. “You could have them call their brother, a lawyer, the department of insurance, or the insurance company; we all know it probably wouldn't do them any good whatsoever. My question was, what would you personally do for them?” “If you are going to prove that you have their best interest in mind and potentially earn their future business,” I continued, “you need to step up to the plate and help them.”
With that, all of the wildly-spinning wheels in the room suddenly came to a screeching halt. At that very moment, there was more tension in the room than there had been at any other time that day. “In an interview I once did with ABC television,” I continued, “I stated that if all life insurance agents could be judged as a whole, 40% of those agents would steal your last dime and not lose a minute of sleep. 59% of those left would be the most loyal, ethical, honest, caring professionals ever to bless your kitchen table with a briefcase. Unfortunately, if the members of this second group are presented with a case of fraud or misrepresentation, they will turn their heads and do nothing about it. They take no personal interest in these situations and merely pass their fiduciary responsibility along to lawyers, department of insurance investigators, or back to the insurance companies.”
At that point, everyone turned to look at a thin man over on the left side of the room that raised his hand with a question. “Do you have a question sir?” I asked. “Yes,” he said, “that's only 99%.” “I beg your pardon?” I said, as if I had no idea what he was talking about. “A minute ago, you said that 40% of all life insurance agents would rip you off and the other 59% wouldn't do anything about it. That's only 99%. What happened to the other 1%?” With a broad smile, I chuckled and was delighted that someone had paid attention. “That's where I'd like to see every single one of you conduct business from this day forwards," I remarked, “In the 1% of those who'll cause a change to the rest of the industry. Don't just replace policies and let the bad agents off the hook, take a stand for your clients and prove you're on their side.”
After I was introduced, I stood at the podium in front of roughly 220 people and proceeded through most of my presentation. As I neared the end, I decided I would make the first move.
“Here's the situation,” I began. “You are meeting with some prospects for the very first time. They are both in their mid-40s, in good health, and nonsmokers. They've come to you to discuss a possible upgrade to their life insurance portfolio. It seems that someone they trust spoke very highly of you, and they know you will do your best to provide both knowledgeable and professional service.”
“You thank them for inviting you to their home and speak warmly about the mutual friend who referred you. After a little small-talk, you ask them about any current policies they have. The wife smiles and hands you a folder containing a regular universal life policy issued just six years prior. ‘We don't want to do anything to this policy,’ she explains, ‘it was sold to us by my brother-in-law, and it will be paid-up next year. We'd just like to get another policy to supplement it, and we know that you're the guy to help us.’ Because you are an experienced agent, the skyrockets in the back of your mind begin shooting skyward. ‘Paid up in only seven years?’ you ask. ‘Yes,’ they reply. ‘Since the company our brother works for pays above-average interest rates on their life insurance policies, we'll be done paying for this policy next year.’ ‘Then, we can devote the $125 per month we currently spend on this policy to the one we plan on buying from you.’ ‘So, sometime next year,’ you confirm, ‘this policy which covers you (the husband is the primary insured) for $100,000 and you (the wife has a term rider) for $100,000 will not require any further premium payments – forever?’ ‘Yes,’ the wife replies, ‘we were very lucky to have gotten such a great deal on this policy.’ ‘Why didn't you go back to your brother-in-law for the new policy as well?’ you ask. The husband states that because his brother did so well in the company's sales division, he was promoted to an upper-management position in the company's home office. ‘Oh, by the way,’ the wife adds, ‘will the policy that you're going to show us also pay-up in seven or eight years?’”
You could have heard a pin drop in the room when I re-addressed the audience. “That's your situation, ladies and gentlemen; if these were your potential clients, what would you do?”
The very first voice I heard commented, “The policy is not that big; I'd leave and let someone else worry about it.” Following that, there was quite a bit of conversation in the room. “I would tell them that they need to pay more money,” one person said. “There's no way a policy like that will be paid off in only seven or eight years,” said another. A young lady near the front of the room asked, “Should I have them call someone at the Department of Insurance?” Several people mentioned that they would tell them the truth then replace the policy with a new plan. “I'd have them call a lawyer,” and older man stated. I vaguely heard someone further back exclaim, “Yes, but the brother-in-law is going to be pissed.”
What I had laid-out for the class was a textbook case of Vanishing Premium Fraud. In cases like this, the agent wins, the company wins, and the policy holders typically lose both their policies and all the cash value in just a few years. No matter which group they fell into, the agents in the room know it is illegal to sell life insurance this way. This type of sale is unethical, immoral, and a horrible thing to do to members of your own family.
After a few minutes, I stepped back up to the microphone. “Ladies and gentlemen, can I have your attention for a moment?” I asked. “You could have them call their brother, a lawyer, the department of insurance, or the insurance company; we all know it probably wouldn't do them any good whatsoever. My question was, what would you personally do for them?” “If you are going to prove that you have their best interest in mind and potentially earn their future business,” I continued, “you need to step up to the plate and help them.”
With that, all of the wildly-spinning wheels in the room suddenly came to a screeching halt. At that very moment, there was more tension in the room than there had been at any other time that day. “In an interview I once did with ABC television,” I continued, “I stated that if all life insurance agents could be judged as a whole, 40% of those agents would steal your last dime and not lose a minute of sleep. 59% of those left would be the most loyal, ethical, honest, caring professionals ever to bless your kitchen table with a briefcase. Unfortunately, if the members of this second group are presented with a case of fraud or misrepresentation, they will turn their heads and do nothing about it. They take no personal interest in these situations and merely pass their fiduciary responsibility along to lawyers, department of insurance investigators, or back to the insurance companies.”
At that point, everyone turned to look at a thin man over on the left side of the room that raised his hand with a question. “Do you have a question sir?” I asked. “Yes,” he said, “that's only 99%.” “I beg your pardon?” I said, as if I had no idea what he was talking about. “A minute ago, you said that 40% of all life insurance agents would rip you off and the other 59% wouldn't do anything about it. That's only 99%. What happened to the other 1%?” With a broad smile, I chuckled and was delighted that someone had paid attention. “That's where I'd like to see every single one of you conduct business from this day forwards," I remarked, “In the 1% of those who'll cause a change to the rest of the industry. Don't just replace policies and let the bad agents off the hook, take a stand for your clients and prove you're on their side.”
Posted: Tue May 01, 2012 06:34 pm Post Subject:
What I had laid-out for the class was a textbook case of Vanishing Premium Fraud.
Here's where we differ on this. Is this a textbook case of vanishing premium fraud? Probably. Do we know that for sure? No way.
Here's an example from my practice. Early in my career, I was with a big mutual whole life company. At that time, BASED UPON THE CURRENT NON-GUARANTEED dividend scale, OUT OF POCKET PREMIUMS were only needed for 10 years.
I always explained to my clients that premiums always needed to be paid. I always explained to my clients that if the dividends were less than they were at that time, out of pocket premiums would be needed for a longer time, and possibly for their entire lifetime.
I always made sure that my clients understood that.
Fast forward 10 years. Is it possible that I lost touch with a client and in speaking to another agent, they told the agent that I said that premiums were only needed for 10 years? Absolutely. Is that what I said? Nope. Is that what I conveyed? Nope.
Now, let's go to your scenario. I fully understand that the agent could have ripped off his relatives and said, "This policy will be paid up after 7 years and no premiums will ever be needed and the policy will stay in force until your death." Is it also possible that this policy stemmed from some other conversation. "If, for example, you just pay into this policy at $125/month for 7 years, it is guaranteed to stay in force for 12 years which will be when your son is out of school. If the costs of the policy stay the same and it keeps paying this high interest rate, it could stay in force until you are 100."
My point is that we don't know what happened and what was said. We should not be accusing people of wrong doing without knowing both sides of a story. As an agent what I do is to tell my client the truth.
"IF your agent said XYZ, he is not correct. Let me explain how this works and what will happen if you don't keep paying."
I think that people like Max do a great disservice to the industry as a whole when he accuses other agents of wrong doing without knowing the complete facts.
If we know that an agent has done something wrong, that is one thing. If we only "know" based upon what an insured said was told to him many years ago, that is completely different.
Posted: Tue May 01, 2012 07:46 pm Post Subject:
BASED UPON THE CURRENT NON-GUARANTEED dividend scale, OUT OF POCKET PREMIUMS were only needed for 10 years.
and
If we only "know" based upon what an insured said was told to him many years ago, that is completely different.
The mistake is in even bringing up the subject with the client in the first place. Because, guess what? Clients don't often make up things they did not hear. Certainly, they could have selective hearing, but who started the conversation?
If the only way to sell a policy is to claim that it may be able to pay for itself -- but that you might have to pay additional premiums in the future -- then it shouldn't be sold in the first place.
If someone wants to pay premiums for only seven or ten years, and be assured that they will never pay another premium, that is easy enough to do. But it will also take more money to do it.
When agents (often prompted by their insurance companies) try to gimmick their way into a sale by using dividends or interest to pay future premiums, it invites trouble on the agent and the insurer. Don't want that kind of trouble, don't go down that road.
I guarantee that clients will be far happier to get a refund or additional insurance without paying premiums legitimately, than suddenly being told "Your policy will lapse in 60 days unless you pay . . . ."
The only challenge is that most clients can't afford the freight for a true seven-pay or ten-pay or twenty-pay policy.
I think that people like Max do a great disservice to the industry as a whole when he accuses other agents of wrong doing
The truth of the matter is that agents do this to themselves. Those I know personally would never dream of abusing their clients or the public. But, truth be told, there are too many agents -- life, P&C -- who should not be in a position to come between the public and their money. We see too much evidence of it in California where there are a quarter million licensed agents. It's not only happening here.
And the business of "My agent told me I only had to pay premiums for (5, 7, 10) years" . . . I hear that crap more often that even I would like to believe it's being said. But my experience has been that the client is less likely to make that up than to have heard it from the lips of the agent.
It cost an insurance company over a half-million dollars to settle a case I worked on earlier this year in which the agent gave the client an illustration that showed $20,000 premiums for each of five years, and nothing thereafter. The insurance company tried to claim it was not an example of a vanishing premium illustration. What everyone missed before I looked at the illustration was the fact that even in the guaranteed column, that didn't support the policy to age 100 -- except that the illustration STOPPED the year before the policy would lapse. Everything on paper looked like the policy would perform on that basis with a 12% rate of return.
The ONLY THING the clients ever insisted was told to them was: "You pay $20,000 for five years, like it shows here, and you have $2,000,000 when you die." If the insurance company did not believe that after my analysis, they would not have settled without even deposing me.
You tend to believe, as an ethical person, that all agents are ethical. I tend to believe, as an ethical person, that not everyone else is ethical. And I give great weight to what clients/insureds tell me -- because they don't have the knowledge that you or I do. And when they tell me someone did something wrong to them, it's up to the agent to prove to me otherwise.
As a licensed person, the rules are a bit different. We're supposed to know what we're talking about. So, it's guilty until proven innocent. If an agent can show me that what they did was proper and aboveboard, I will be their strongest defender. Because every time an agent goes down for being abusive of the agent-client relationship, the rest of us all get another black eye.
Maybe if you worked on the side of things I am now working on, your opinion would be different. There's far more of it happening than I think you can even begin to imagine.
Posted: Tue May 01, 2012 08:15 pm Post Subject:
After going to great lengths to bring you off the anonymous list, you merely change threads and go right back to "calling people names behind a locked door." I've been working hard to help you establish some sort of credibility and you're simply not helping me.
Here's where we differ on this. Is this a textbook case of vanishing premium fraud? Probably. Do we know that for sure? No way.
All right, I'll give you that. You had no idea what the details of this case actually were and weren't given enough information. I'm not going to hold that against you.
I was with a big mutual whole life company. At that time, BASED UPON THE CURRENT NON-GUARANTEED dividend scale, OUT OF POCKET PREMIUMS were only needed for 10 years.
You obviously don't understand how ludicrous that statement actually is. I'd like everyone to read that statement again very slowly.
At that time, BASED UPON THE CURRENT NON-GUARANTEED dividend scale, OUT OF POCKET PREMIUMS were only needed for 10 years.
Besides you, Who Else Made That Representation? You were an agent; more than likely very well-qualified, and one of the very best agents that Big Mutual Whole Life Company had. Every single time you sold a policy you handed your clients a contract and somewhere in there was a paragraph that stated,
"No sales representative or other person except our President, Vice-President, or Secretary may (a) make or change any contract of insurance; or (b) make any binding promises about the policy benefits; or (c) change or waive any of the terms of this policy. Any change is valid only if made in writing and signed by our President, Vice-President, or Secretary.
As a loyal, honest, trustworthy, thrifty, brave, clean and reverent agent, did you ever personally witness your company's President Vice-President or Secretary ever mention anything about out of pocket premiums only being necessary for 10 years?
You cannot challenge the fact that Prudential was sued for $2.3 billion, Metropolitan Life for $1.7 billion, and NY Life for $1.3 billion - all within the relatively same timeframe - and for all the same thing. Misrepresenting the terms and conditions of Universal Life policies.
I always explained to my clients that premiums always needed to be paid. I always explained to my clients that if the dividends were less than they were at that time, out of pocket premiums would be needed for a longer time, and possibly for their entire lifetime.
Why are you taking this personally? At no point have I insinuated that you’ve ever failed to act in your client’s best interest. You were obviously one of the few who took the time to make sure their clients were advised and well-informed. I guarantee you that had I ever investigated one of your cases, I would have recognized that right away and you would have kept your license to sell insurance. You do not, however, reserve the right to speak for, or on behalf of, other agents. You simply cannot speak about the level of care provided by anyone other than you.
Fast forward 10 years. Is it possible that I lost touch with a client and in speaking to another agent, they told the agent that I said that premiums were only needed for 10 years? Absolutely. Is that what I said? Nope. Is that what I conveyed? Nope.
I agree with you completely. And had I been called to investigate one of your cases, I would have recognized that.
My point is that we don't know what happened and what was said. We should not be accusing people of wrong doing without knowing both sides of a story. As an agent what I do is to tell my client the truth.
Again, I apologize for not giving you enough information.
I do know what happened and exactly what was said. When the agent was deposed, he said (under oath) "That's the way I was trained." His branch manager said, also under oath, "Why are you pointing the finger at us? Everyone does it that way."
"IF (sic) your agent said XYZ, he is not correct. Let me explain how this works and what will happen if you don't keep paying."
Excellent attitude. Most agents would have instructed them to surrender the policy and sold them something new.
I think that people like Max do a great disservice to the industry as a whole when he accuses other agents of wrong doing without knowing the complete facts.
Max is one of the most professional insurance people I've ever met, and a world-class analyst - or he wouldn't be working with me. If you're going to continue point the crooked little finger from behind the closed door, I'd rather it be at me.
Posted: Fri May 04, 2012 03:03 pm Post Subject:
Mark, let me try to make my point as simply as possible. Bad apples are a huge problem in our business and we need to get rid of them.
At the same time, we need to be very cautious of accusing other agents of being bad apples unless we are certain that is the case. When any agent gets accused of doing something wrong, it hurts the whole industry regardless of whether they are guilty or not. So, let's just not be so quick to jump on other agents UNTIL we are certain.
Posted: Fri May 04, 2012 03:15 pm Post Subject:
The mistake is in even bringing up the subject with the client in the first place. Because, guess what? Clients don't often make up things they did not hear. Certainly, they could have selective hearing, but who started the conversation?
If the only way to sell a policy is to claim that it may be able to pay for itself -- but that you might have to pay additional premiums in the future -- then it shouldn't be sold in the first place.
The mistake isn't in bringing up the subject. The mistake is in showing an illustration. People will believe the illustration will come true.
We aren't doing our job of explaining dividends if we don't include in the conversation that dividends, to whatever extent that they are paid, if they are paid, can be used to help pay premiums. A client should never be left to believe that in a specific number of years, no out of pocket premiums will need to be paid. At the same time, they should know that if a dividend is paid, one can keep their same amount of insurance while paying less out of pocket and possibly nothing if the dividend is high enough.
Max, I don't believe that everyone is ethical. However, I do believe that if someone says, "My agent said XYZ", that it doesn't necessarily mean that the agent said "XYZ". I'm just not willing to assume wrongdoing without hearing both sides of the story.
Posted: Fri May 04, 2012 04:17 pm Post Subject:
A client should never be left to believe that in a specific number of years, no out of pocket premiums will need to be paid. At the same time, they should know that if a dividend is paid, one can keep their same amount of insurance while paying less out of pocket and possibly nothing if the dividend is high enough.
Absolutely correct on both accounts.
I'm just not willing to assume wrongdoing without hearing both sides of the story.
Nothing wrong with that when you are sitting on the jury. But to even get it in front of the jury, someone has to be willing to share their knowledge of the industry and its practices, and support the plaintiff in their assertion that something wrong was done. If I see it, I support it, if I don't see it, I don't support it.
I don't doubt that some people lie about what an agent has said. But having been on both sides (agent and insured), I know that what agents often say is said out of their own ignorance or because someone told them (or trained them) to say it that way.
Here's the issue: I think you just don't have enough exposure to the bad actors, which is not your fault, and for which you should not be faulted. Even though they represent a small minority of agents, there's far more of them out there than you may be inclined to believe.
Posted: Fri May 04, 2012 10:57 pm Post Subject:
I want to be clear that I'm not saying that people are lying when they say, "My agent said XYZ". In fact, I think that it is very doubtful that they are lying. Instead, I just wouldn't be very inclined to trust their memory on conversations that happened many years previously.
I'm in complete agreement that there are many bad apples with much of the problems due to poor training. Unfortunately, I have been exposed to more than my share of dishonest fraudulent behavior, so I am not naive.
I think that we only differ in the respect that you are much quicker to assume that something bad happened based on the word of the insured.
In other words, if someone posted here, "My agent told me that I only had to pay for 12 years", you would talk about the agent not being honest while I wouldn't assume that the agent actually said that.
Posted: Fri May 04, 2012 11:46 pm Post Subject:
I think that it is very doubtful that they are lying. Instead, I just wouldn't be very inclined to trust their memory on conversations that happened many years previously.
So what you're saying is recalling old memories is not lying, but it can't be trusted? Remember the name of your first girlfriend? Your high school locker combination? The street you lived on in third grade? What you were doing the day President Kennedy was assasinated (or the morning of Sept 11, 2001 if you aren't old enough to have been around in 1963)?
I think you are not giving memory enough credit.
you would talk about the agent not being honest while I wouldn't assume that the agent actually said that.
If that's the way you want to think of it, then, yes, you are a juror and I am a prosecutor. My job is to prove my case to you, and if I don't present the evidence to do that, then I must believe that the agent did not do anything wrong?
No, that's your job as a juror. I can still hold the opinion that I started with.
That's all it is is an opinion. I am entitled to mine, you are entitled to yours.
But consider what your statement says: "I wouldn't assume that the agent actually said that." So here's my question to you: Where did the insured get that idea, if not from the words of the agent?
If you were actively involved in fighting fraud and misrepresentation as I am now, or simply keeping your eyes open for it as I did for many years, I think your attitude might be different.
But feel free to enjoy your opinion. I'm not here to persuade you to have a different one.
Posted: Sat May 05, 2012 12:00 am Post Subject:
As a follow on, there was a recent attempt to certify a class action involving misrepresentation and policy illustrations. The court acknowledged that many members of the plaintiff class had been misrepresented to by agents. But the insurance company effectively argued that not all plaintiffs were shown illustrations in the sales process (although they all received illustrations with their policies as required by law), and the court refused to certify the class because all members were not in the same "position."
I think the court overreached, but that's my opinion. A better preparation and presentation of the case by the attorneys involved could surely have overcome that objection. The case was tossed without prejudice, so it has the ability to come back.
But the court did not say, what we have here is a case of faulty memory and I won't let it go to trial. The court was fully aware that facts of law are matters for the jury, and one side has it's awareness and impressions of the case, and the other side has it's. Everyone presents their case and the jury makes a decision.
If the court makes a mistake in interpreting the law, then it get appealed to a higher court for review, perhaps all the way to the Supreme Court of the US, where a final decision may be issued.
But isn't it true that even after the Supreme Court issues its opinion, people still have their own that may be different?
This is not an issue of memory, it is an issue of opinions vs facts. You won't form an opinion without facts. I can form an opinion and then go looking for the facts. If I don't find them then, like a scientist, I determine that my hypothesis was wrong.
What I don't do is go around town broadcasting that a particular agent is involved in misconduct even though I have discovered the facts. It's not a public matter until it ends up in court.
Posted: Mon May 07, 2012 04:12 am Post Subject:
At the same time, we need to be very cautious of accusing other agents of being bad apples unless we are certain that is the case.
No, let me make something very clear to you: I'm sorry, you are simply not qualified to argue this post. If you believe differently, prove it. This is what WE need to do? Until you are on my payroll, don't even waste my time.
When any agent gets accused of doing something wrong, it hurts the whole industry regardless of whether they are guilty or not.
Spoken like someone truly unsure of his position. Keep your identity a secret, that way no one will call you an idiot.
So, let's just not be so quick to jump on other agents UNTIL we are certain.
There's that WE word again. Again, you are simply not qualified to argue this point.
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