PRUDENTIAL Insurance Co. has been on the hot seat after agents with the giant insurer were accused of using improper sales practices to coax thousands of policyholders to buy new life insurance, which wiped out the value of their old policies and caused many to lose their life's savings.
Prudential is the subject of dozens of lawsuits. Regulators in some states have moved to lift its license. Insurance-rating services have lowered Prudential's grade. Now evidence has surfaced that Prudential employees destroyed documents to cover wrongdoing. And Prudential's proposed settlement of the
litigation is drawing fire.
Prudential agreed to pay at least $410 million to policyholders who were harmed and up to $90 million to their attorneys, and its spokesman called the deal "fair and equitable."
But regulators in several states, including California, Florida, Texas and Massachusetts, have filed objections to the proposed settlement, saying it places too great a burden on consumers. Prudential's cost of settlement could eventually run more than $1 billion, some analysts believe.
Is Prudential's offer on the table fair? What does a scandal like this do to the image of the insurance industry?
What can the industry learn from Prudential's mistakes?
Spokesman, American Council of Life Insurance, Washington
Frankly, in our polling there is a greater concern about whether consumers perceive the need for the product of life insurance. Things like this may not help, but Prudential is aggressively moving to fix this problem, and consumers can count on that from the industry.
Consumers shouldn't allow publicity from Prudential's efforts to correct problems with its sales practices to keep them from considering the important purchase of life insurance.
I have followed this a long time. A lot of what you are seeing is old news, frankly. Prudential has done a lot to respond to the issues related to improper sales practices. Prudential has apologized to its policyholders and has agreed to provide
remedies to people with legitimate claims.
The company has been at this for some time and now it has put in place a number of systems and procedures designed to help detect and deter improper sales practices.
In fact, this has caused many companies in the life insurance industry to continue to review their own internal sales practices and procedures.
It is a huge company. In many respects, that is why this is a bigger story.
Insurance Commissioner, state of California
We made the decision to file an objection to the proposed settlement with Prudential.
The settlement could affect 750,000 policyholders in California, and in the face of the evidence we see that management sanctioned fraud, the very recent destruction of evidence that has come to light, the fact that policyholders are not even allowed to file for compensation from Prudential after Sept. 21 of this year, we're going to have to oppose this.
In my judgment, the settlement places too much of a burden on Prudential's customers to prove that they were defrauded. They've got to come up and prove that an agent lied to them about the performance of the product that they were buying. That's going to have the effect of depriving thousands of policyholders of their compensation.
It's weighted too much in favor of the company.
Executive director, Maryland State Association of Life Underwriters, Baltimore
Any time something that happens that is bad in the industry it is going to have repercussions; there is no way to get around it.
It was a small number of agents, and consumers should realize that the vast majority of agents are honest ethical sales people. I think there are 30 million insurance transactions each year. If you take that into consideration, market conduct abuses are infrequent.
Agents who choose to join the National Association of Life Underwriters, they have to subscribe to a code of ethics and adhere to high standards of professionalism.
We are very concerned about any allegation of wrongdoing in the industry. To the extent that they exist, we believe that regulators should conduct full and fair investigations. Where appropriate, the agent should be punished and consumers should be compensated for their losses.
We certainly aren't going to sit there and smile when we would like to see the bad apples removed.
Know your agent. The issue of replacement -- that is what was taking place in the Prudential situation, they were replacing policies and not giving the best counsel to the clients -- there are some who would make the case that it never should be replaced.
It is not an investment vehicle. You need to have insurance in the event of death.
Pub Date: 12/29/96