DCBS Media Release
July 9, 1996
Prudential to pay Oregon quarter million dollar penalty
(Salem) The State of Oregon has agreed in principle to a settlement with Prudential Insurance Company of America, whereby the company will pay a record $250,000 penalty for widespread abuses in its life insurance sales practices in the state. Oregon's action comes in conjunction with settlements Prudential has reached with state regulators across the country, which include a total penalty of $35 million plus a nationwide restitution program for policyholders harmed by the company's sales practices.
Prudential has a total of 51,578 life insurance policyholders in Oregon. The company collected $43,294,398 in Oregon life insurance premiums in 1994.
These settlements follow the release of a 232-page report produced after more than a year's work by a multi-state task force. Officials with the Oregon Insurance Division participated in the multi-state task force, sharing technical information and assistance.
The report details problems found across the country with regard to Prudential's life insurance sales and marketing practices; internal systems to track transactions in which existing life insurance policies were replaced with new ones; systems to recapture commissions from agents; agent training; and agent discipline.
The multi-state task force reviewed nearly 10 million computerized company records and other information. It interviewed 283 agents and 27 sales vice presidents and executive vice presidents around the country. The task force also reviewed various states' complaint records against Prudential, plus market conduct examinations of the company.
Sales abuses uncovered by the investigation include practices called "churning" and "twisting." Churning is a term normally associated with the securities industry and refers to repeated sales to generate commissions. Twisting is the sale of insurance based upon incomplete or fraudulent comparisons, which is prohibited by fair trade practices laws in every state.
"Consumers should be able to rely on the honesty and integrity of their insurance company and its agents," Oregon Insurance Commissioner Kerry Barnett said. "Prudential violated that trust, and will now pay a major price. So will any other company or agent who pursues these kinds of bogus sales strategies."
Prudential customers have complained to state regulators and in lawsuits that the company's agents improperly induced policyholders to apply the cash value and dividends from their life insurance policies to purchase additional life insurance products, causing the policyholders to lose money both in the transaction and in agent commissions. Some have alleged that agents misrepresented to consumers that they would not have to pay any additional out-of-pocket costs for the new policies, that the payments would decrease or cease altogether over time, or that they would only be required to pay a limited number of premium payments.
Complaints received by the Oregon Insurance Division confirm that consumers here have faced the kinds of sales practices described in the task force's report.
In addition to the penalties paid to state regulators, which in Oregon will go into the state General Fund, Prudential will notify all customers who purchased permanent life insurance policies between 1982 and 1995 that they can submit sales-related claims for remediation.
Consumers who do not choose to pursue litigation against Prudential may request "basic claim relief," which offers a set of choices without proof of harm, or submit a claim through an alternative dispute resolution process, which will determine if a customer has been harmed by the company's past sales practices and what the appropriate form of relief or compensation will be. Types of relief offered will vary, depending on the facts of each individual claim. Consumers will have opportunities to appeal findings at several points through the process.
For consumers who have been harmed, the range of compensation includes full refunds of premiums; continued coverage with no additional premiums due; or partial refund of premiums. Customers will also be offered the opportunity to obtain additional life insurance or annuities with no agents making commissions on those transactions. Instead, the usual commissions will be used to enhance the value of the additional policy or annuity.
Policyholders should receive a letter from Prudential within 90 days, outlining their rights and options. They may also call the company for general information regarding the remediation program, at 1-800-736-8913.
In addition, insurance consumers who want to register a complaint about company or agent practices, or who want to seek help from compliance officers with the Oregon Insurance Division, may call the division at 503-947-7980.