Burnt Offerings - Sacrificing Insurance and Investment Clients to the Altars of Greed and Compliance
According to Webster, compliance is normally defined as "the act of conforming, acquiescing, or yielding." Within the insurance and investment world it means a company department dedicated to interpreting the laws governing the industry, dictating policy to the employees and investigating violations. It is populated with lawyers and examiners who do their best to keep the company out of trouble with the state and federal governments. Any agent who receives a client complaint falls under the scrutiny of the compliance department. Once identified, regardless of the validity of the complaint, the agent is considered guilty until proven innocent.
Compliance departments rapidly expanded following a feeding frenzy of corrupt life insurance sales across the United States during the 1980s and early 1990s. Few insurance companies were immune to the rampant manipulation of money in old life insurance policies for the sole purpose of creating sales of new policies. These actions weren't some crackpot ideas initiated by desperate agents or ignorant clients. The sales campaigns were carefully planned and executed at the highest levels of company executives. The upper management of the companies ordered agents to revisit all existing clients with sufficient monetary value in their old policies and offer them more life insurance for "free."
The sales concept was deceptively simple. A cooperating agent just needed to examine the life insurance records of his body of clients, find the ones who had money built up inside the policy or policies, meet with the client to "review" their coverage, point out all the unused value languishing unproductively inside the dusty old policy and propose using it to buy more "tax free" death benefit for the client's family. The clincher to the sale was when the agent appealed to the client's greed by telling them that they would never have to pay a dime for it. The clients were told that the money inside the old policies would take care of the new ones for the rest of their lives.
Insurance sales skyrocketed, with many agents being so successful that they rapidly climbed the corporate ladder into upper management, where they could spread their sales ideas throughout the company. Big money from the sales commissions and bonuses allowed agents to qualify for special sales conferences to posh resorts where they could learn even newer sales techniques to enhance their careers. Everyone involved was "in the money," and there appeared to be no end to the profits. As long as there continued to be plenty of stored cash in old insurance policies, easy sales kept happening. It didn't matter to the insurance companies that the clients were being encouraged to take money out of one pocket and put it into another just for the sake of generating sales and commissions. Management looked good because the sales of new policies were up, the agents using the dubious techniques were making money, and the greedy clients believed they were getting something for nothing. Nearly everyone was happy.
Reality reared its ugly head when interest and dividend rates dropped from the inflationary levels of the 1980s. The old dusty life insurance policies could no longer support the new "free" ones. The bubbling spring of cash flowing into them dried up and all the grand plans for a rosy guaranteed secure future evaporated. Both the old and new policies failed leaving the clients with no legacy for their families. Lawsuits against the insurance companies and their agents piled up, as did complaints to the state and federal regulatory departments. Any time that government is caught napping, when it wakes up and has to deal with legal turmoil and bailouts it becomes an angry, heavy-fisted rampaging giant.
The insurance companies were investigated and rightfully found guilty of misrepresenting their products to their clientele. It was exposed that the programs for the sale of "free" life insurance policies existed purely for the sake of generating commissions and provided little or no overall benefit to the clients. The scale of the corruption was so vast that full monetary compensation for the losses was impossible. The corruption in many of the largest companies reached into the billions of dollars. For those clients still alive, settlements were offered and eventually accepted.
Within the government mandates, insurance companies were required to create compliance departments to oversee, investigate and regulate their sales practices and promise that the clients would never be wrongly taken advantage of again. By forcing the companies to be self-policing, governmental authorities thought they could better control the potential for corruption and mismanagement, at least until the next corporate disaster hit the public.
Ordering a company that deals exclusively with huge amounts of money to self-police is much like a shepherd trusting his flock of sheep to wolves merely because he's threatened them with death if any more hanky-panky goes on. The reality is that there are far too many sheep for the shepherd to tend and there are plenty of hungry wolves looking for loopholes in the extinction clause. Yet, most insurance company compliance departments follow the letter of the law, if not the spirit, that governs them, maintaining at least the appearance of ethical behavior.
The shepherd does come back on occasion and count the number of sheep. Not being totally naïve, he expects to see some violations of the rules, and the wolves make sure there are sufficient sacrifices to appease him. Compliance knows that a report of perfect conformity to the regulations makes the government nervous, and the last thing the company wants is to be audited. Within this need to satisfy the governmental regulators and follow only the letter of the law lie the tragic moral and ethical shortcomings of compliance departments. To stay away from governmental scrutiny, compliance departments discourage honest agents from attempting to help clients who are victims of misrepresentation and corruption by other companies. For the sake of convenience, the spirit of the anti-corruption laws and regulations plus the trust the client has in their agent are violated.
Any good agent can quickly spot cases of misrepresentation or instances where the client was a victim of fraud. Because most people don't make an effort to educate themselves about their insurance products, many don't realize that they've been taken to the cleaners. Many generous and honest agents will devote time at their own expense to help these clients understand the whys and hows of the fraud that was perpetrated. This may not only be an attempt to help a good client, but also an act of professionalism and pride in the quality of their work. As in all professions, there are good and bad people. Clients are lucky to have such an advocate, even though many don't understand or appreciate the value of the agent's services.
Unfortunately, fewer and fewer agents are willing to risk the ire of their company's compliance department or state and federal regulators by helping with complaints of fraud. A visit from insurance regulators or company compliance investigators can aptly be compared to an audit by the IRS. If an agent tries to help a client file a complaint against another insurance company or agent, his motives may be immediately questioned and his actions examined. Not only are all of the helping agent's records dealing with the cheated client gone over, but his entire body of clientele may also be reviewed. When that happens, simple human error in the form of an outdated brochure or misfiled form could result in sanctions and fines. The agent's act of professionalism and charity becomes a costly form of punishment.
When an honest and experienced agent identifies a case of insurance related fraud, difficult moral and ethical questions arise. Will anyone appreciate not only the effort, but also the potential trouble the agent may create for himself by alerting the client and helping them resolve the issue? Or, is ignoring the crime by saying nothing and choosing self-preservation the best course of action? It's a quandary that only the agent has to face and resolve. Insurance fraud is a nearly unmanageable result of greed created by an industry fueled by money that affects everyone involved.
So, what can you do to protect yourself against fraudulent insurance practices? Educate yourself about money management. Read all the large and fine print on any insurance product you are offered. Ask questions until you fully understand what you're buying. Review your insurance and investments at least once a year to ensure that they still meet your needs. Hope that you are wise enough not to be taken advantage of and that your finances don't become a burnt offering. And, if you have a good, well-educated agent, appreciate the value of what they provide.