Should agents police their own industry?

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.”