Fifteen Thousand Simplified|Guaranteed Issue Life Insurance Policies
I’ll be the first to admit that I was shocked to read the NY Times article recently about 15,000 bogus term life insurance policies taken out by Wells Fargo branch bankers. My initial thought was, “how could Prudential let this happen?”. They’re the largest life insurance company in the country with well over $1Trillion in assets. They must have a compliance department overseeing the Wells Fargo and other institutional account activities like this. Well, it seems that they do have a compliance/investigative unit, but Prudential just fired three of the top employees in the department who were responsible for looking into fraudulent life insurance activities.
If you’ve read anything about the Wells Fargo bank account scandal, you know that the retail bankers were under tremendous pressure to open as many types of accounts with customers as possible. As a life insurance broker, I thought that these activities only involved checking and savings accounts and perhaps a money market. Now we are learning that Wells dipped its hands into a very lucrative life insurance pond-and LOVED it! Prudential, or “Pru” developed a mass-market simplified issue term life policy called “MyTerm” which requires very little medical information, just a few “simple” questions. Then a policy is issued. Sounds simple enough, except that many of these policies lapsed in the first couple of months. This is important because it beefed up Well’s sale numbers, but did nothing but cost Pru a lot of money in lost admin costs, marketing expense, and caused a major trigger for a compliance audit.
Compliance Swoops In
As a life insurance professional, the word “compliance” strikes fear in all of us! Agents and brokers are trained to genuflect to the “compliance guys” and not volunteer any more information than is absolutely necessary. That was in the old days, when I was in an agency setting and had a home office person visit the agency and our General Agent introduced him as God and told us we needed to open up our doors and files and get ready for inspection. We all complied and the HO rep gave each of the agents a short review. Usually there was nothing wrong and he went on his way.
In 1993 that all changed when a colleague fraudulently misrepresented a Variable Life insurance policy to an elderly woman. The investigation took several months. Remember, this was a friend of mine. We went through agency training together and we celebrated and commiserated on Friday afternoons when our GA would make his rounds and ask the infamous question, “what d’ya got?” We grew to dread those afternoons, especially if we had not sold any life insurance policies or other financial products that week.
Easy Come, Easy Go
After about 90 days, my friend and colleague was called into the GA’s office where he was met by the agency VP of the company, which was a huge deal as that person eventually ended up being third in command of the company. The door was closed and about two hours later my colleague emerged and started putting his office things into a box. No words were said, no one talked; dead silence. Down the stairs he went and off the agency annals he was stricken. It was like he never existed. For 4 years he was a fun, affable, bright fixture in our agency. Two hours with the Agency VP and a 90 day compliance investigation later, he had a blank spot in his resume. Turned out that it took him about 9 months to find another job. he moved out of the area and we lost track of each other.
What Does This Have To Do With Wells Fargo and Prudential
A lot, actually. I never gave much thought about our compliance visits. I always viewed them as a pain in the neck and a very big waste of time. Then I read the article about Wells Fargo and Prudential and began to remember our meetings and training. I remember hearing our compliance folks hammering into us the fact that one sale in the short term, if you don’t disclose all relevant facts and take “shortcuts”, will jeopardize your entire career. You will never gain back you license or your professional trust, which is fragile to begin with in my business.
So where were the “compliance guys” at Wells Fargo? Why didn’t they have those semi-annual compliance meetings which were so boring, we thought? Where were the branch managers who were overseeing all of this fraudulent activity? The managers must have seen their numbers each day? Yes, there was tremendous sales pressure from the Regional VP’s i’m sure, but that doesn’t cut it for me. I’ve been subject to a lot of sales pressure, but it was ETHICAL sales pressure, an oxymoron I know. Think about this, though. In 32 years of life insurance sales, I’ve only witnessed one extreme compliance violation. Sure, there are always aggressive sales people, but nothing on the massive scale of the Wells/Pru pandemic. There you have institutional fraud at it’s most egregious.
In life insurance, for continuing education, each life insurance company mandates an annual anti-money laundering class, which I recently completed. If brokers and agents do not complete refresher classes, their contracts are cut off and with it possible commission revenue, depending on the contract type. Generally, the insurance industry does a great job self-policing so this kind of wholesale financial subversion won’t happen. I have a feeling that the Pru compliance folks who found the 15,000 sham policies were simply doing some due diligence and asking the right questions. I think we’ll see further evidence of collusion as other journalists continue to uncover the details of the Wells fraud.
My hope is that Prudential, with its vast resources, doesn’t feel the need to pick the “low-hanging fruit” of easy simplified life insurance peddled to a population that may not understand the language in which the policies were written. I also hope that the retail bankers who sold these policies are able to understand that, if they like to sell financial products and insurance, there are many retail avenues open to them and that they don’t need to cave under intense unethical/illegal/fraudulent sales pressure from management that does not respect its customers or the very sales producers who have the relationships with the institution’s customers. All it takes is for one sales professional to say “no” to the system of deception in life insurance sales and the rest will follow. My hope is that this is the last wholesale financial fraud that I’ll witness in the life insurance field. Wells Fargo agents and bankers, please prove me right.