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Prudential Settlement.

December 6, 1996
By: Tracy Sadeghian

Death. It's something we don't like to think about.

Many Missourians make plans to provide for loved ones they'll leave buying life insurance.

But some customers of the world's largest insurance company..the Prudential..have learned that their piece of the rock has crumbled.

That's because of some moves Prudential salespeople made with customers' policies.

At issue: deceptive sales practices used to sell Prudential customers bigger, more expensive polices. These policies were not always in the customer's best interest.

As K-B-I-A's Tracy Sadeghian reports, these sales tactics have landed the Prudential in hot water with some Missourians and state insurance regulators...

Actuality: ** NAT SOUND ** (commercial)
RunTime: 18
OutCue: "..inappropriate advice."
Contents: "For a solution that is regarding your child's education with life insurance and more, we suggest you talk to a Prudential Insurance representative. Because if you thought inappropriate music was bad, imagine the consequences of inappropriate advice."

And it was inappropriate advice given by Prudential sales agents that has led to the nation's largest settlement against an insurance company.

Under the terms of an agreement hammered out with a multistate task force of insurance regulators, Prudential will hand over a record 35-million-dollars in fines to 44 states.

Missouri's cut is 600-thousand dollars.

Prudential has also agreed to a nationwide restitution program, that could top one-billion dollars.

The reason: deceptive sales practices known as "churning" and "twisting".

"Churning" occurs when a sales person makes repeated sales to the same customer in order to make commissions.

Twisting happens when bogus comparisons are made to net a sale.

RunTime: 06
OutCue: "..on the act
Contents: "I hope they get caught, the ones in on the act."

70-year-old Sarah Tuso says she's been churned.

Sarah is a North Kansas City widow who lives on a meager monthly social security check.

She makes ends meet by telemarketing for the local blind association.

When Sarah's husband died a decade ago, he left her with an eleven-hundred-dollar paid-up life insurance policy.

Sarah also had her own paid-up two-thousand-dollar policy.

She planned to use both policies to pay for her funeral.

But Sarah says trouble began when two Prudential agents showed up one day at her doorstep...

RunTime: 41
OutCue: "...isn't going to hurt you."
Contents: "When I turned 65 and everything, and one day in January, right after my mother died, these people came over. They said, 'we've got a great deal going right now about a $5,000 policy. You don't have to pay nothing, all you'll have to do is say you'll be included. I says 'I'm tired', I said, 'where am I going to pay for this?' Oh you don't have to worry Mr. Dougsdales said. You don't have to worry because we get it out of these two. I said what do you mean, these two policies. What am I gonna have left when you do that., and he says 'it isn't going to hurt you.' "

Tuso claims the agents told her she could buy a bigger life insurance policy and pay for it with the dividends from her two paid-up policies...

RunTime: 17
OutCue: "...three of them."
Contents: "I said how am I going to pay for these policies. I says I aint got no income coming but social security. Well, he says, 'you don't have to worry about it.' Then it dawned on me..he was taking, he was milking me dry out of my other policies, then I wouldn't have nothing in all three of them."

But Sarah trusted the sales agents and bought the new policy.

She later saw the red flag when she read her annual statement from Prudential...

RunTime: 12
OutCue: "...what loan."
Contents: "It showed how much I was getting on my dividends and below it said a loan. It says now this goes to your loan so and so. And I kept figuring, I said what loan?"

That loan had been taken out against Sarah's two paid-up policies to pay for the premiums on the new policy...

RunTime: 09
OutCue: "...gonna happen."
Contents: "God I tell 'ya, I was worried. I said Jesus all of this time and money in and I ain't got nothing. If anything happened to me, what's gonna happen?" Actuality: ** NAT SOUND ** (Operator's voice)
RunTime: 03
OutCue: "..your call."
Contents: "Prudential this is Kathy, how may I direct your call."

Sarah hounded Prudential for almost a year.

She says she asked the company to cancel her new policy and reinstate her old ones. But she was getting nowhere.

Actuality: Tuso
OutCue: "...and worried."
Contents: "If I didn't work my butt off and cry and worry because I don't have nobody, I'm a widow and that's it. For a whole year I cried over that and worried."

That's when Sarah turned to her sales agent, Kim Meeks.

Meeks says she was an inexperienced sales agent when she visited Sarah with her sales manager and sold Sarah the policy that sparked the complaint.

Meeks admits she initially profited from sales like the one made to Tuso.

But she says her guilty conscience eventually led her to quit Prudential...

RunTime: 30
OutCue: "...knowing that."
Contents: "I took responsibility for it. You can only plead ignorance to the fact so long. I may have been ignorant at the time, but I was very well educated by the time I quit. Sarah would have lost everything and I don't think I could've slept knowing that."

Meeks wrote several letters to Prudential trying to straighten out Tuso's policies.

But Meeks claims Prudential stonewalled her. Until she fired off a complaint to the Missouri Department of Insurance on Tuso's behalf... the delight of Sarah Tuso..Prudential agreed to reverse the policy which sparked her complaint and reinstate her original policies.

Meeks claims that sales agents selling new policies don't always have the client's best interest at heart...

RunTime: 24
OutCue: "...10 to 15-percent."
Contents: "The incentive of course is the commissions and the money. The first year the commissions on life insurance makes a big difference as compared to the renewal difference. The first year could be as high as 50 to 60 percent and renewals you're looking at 10 to 15-percent."

Prudential Spokesman Robert DeFillippo disagrees...

Actuality: DeFillippo
RunTime: 09
OutCue: "...sales tactics."
Contents: "We don't generally believe the commission structure in and of itself is the reason why some sales agents participate in deceptive sales practices."

But former sales agent Meeks says Prudential encouraged churning...

Actuality: Meeks
RunTime: 21
OutCue: " Paul."
Contents: "This loan-to-own was taught by other agents. When you take the cash value of a policy and you know take amounts of that each year to buy a new policy, it's just like robbing Peter to pay Paul." Actuality:Meeks
RunTime: 29
OutCue: " myself."
Contents: "I think they turned their head. Yes they had to know what was going on. There were too many complaints about the newer agents like myself that would come in and walk into these homes and again find these situations. And again it would happen to me numerous times and no they just again... If you were writing or producing money or business in their pockets, then yes, this was good."

Prudential's Robert DeFillippo disagrees...

Actuality: DeFillippo
RunTime: 08
OutCue: "...should have been."
Contents: "Prudential people would be severely disciplined. If an instance like that came to our attention, that's how we would handle it."

DeFillippo admits Prudential was not aggressive enough in stemming the churning problem.

He says that during the company's 129-year history, Prudential has had thousands of sales agents and thousands of satisfied customers.

And that it's not fair to paint all sales agents with the same brush...

RunTime: 07
OutCue: "...that time."
Contents: "You have to keep in mind that we're not talking about every single insurance agent or every single person who purchased insurance during that time."

Missouri Department of Insurance spokesman Tom Bixby says there were more than just a few sales agents involved...

Actuality: Bixby
RunTime: 21
OutCue: "..the agents."
Contents: "I think it's disingenuous. They are offering restitution to 10 point seven million people nationwide. It reflects that they acknowledge serious bad behavior on the part of the company and the agents."

The multistate task agreement was hammered out in July.

Under the terms of the agreement, 10-point-seven million Prudential policyholders, who purchased whole life insurance policies between 1982 and 1995, could submit a request for restitution.

Meantime..Prudential faces other legal action.

A nationwide private class action law suit was filed in federal district court in New Jersey alleging Prudential sales agents made improper sales.

New Jersey Insurance Department official..Anita Karalopolous (karta-LOP-alus)led the multistate task force of insurance regulators.

She says because of an unprecedented marriage of both the state plan and the federal class action settlement.. consumers will get expanded restitution based on both settlements...

OutCue: " gotten."

"The court felt and we felt it would be for the benefit of consumers, it would be confusing to have 2 settlements going on simultaneously. So we went to federal district court, the company, Prudential's attorney in the class action, and the regulation from a number of states led by the State of New Jersey and we sat down with Judge Rowland, the judge who's handling the case, and we said 'look these programs have to meet up together, so that policy holders can be treated fairly uniformly, and receive the maximum benefit that can be gotten."

Actuality: Kartalopolous
RunTime: 34
OutCue: "....couldn't get."

"We sat down with the court and sort of married the programs together. The Alternative Dispute Resolution program which the states had generated that the class action had expanded on. The class action had some elements to it that included some cash payments that take place at the end, which is the kind of thing state regulating entities couldn't get for policyholders. We had some pieces that the class action lawyers couldn't get. In particular, the 35-million-dollar fine against the company, which is the largest fine ever levied against an insurance company."

So last month, 10-point-seven million policyholders were mailed an envelope explaining this combined restitution program.

Including more than 200,000 Missourians.

If you qualify for the restitution program, you could get full or partial refund of paid premiums, plus interest.

Or you could get continued policy coverage without paying additional premiums.

You have until December 18th to submit a claim form to the Prudential to participate in the restitution program.

If you think you qualify, you may call Prudential at 1-800- 763-8913.

Missouri Insurance Department official..Tom Bixby..encourages Missourians who think they qualify to file a claim...

RunTime: 27
OutCue: "..probably qualify
Contents: "I think one of the unique things about the Prudential settlement is there is no requirement to show all of that in order to get some level of restitution. Because we recognize on the one hand that people aren't likely to keep that level of records. On the other hand, Prudential's abuses were so widespread, that most people who claimed to have been abused by this type of behavior probably were."

Prudential spokesman Robert DeFillippo says Prudential has accepted the findings of the multistate task force...

RunTime: 20
OutCue: "..paying for it."

Contents: "As we move forward as a company, I can assure you that we have the systems in place to check this, that we will take swift action both in providing references to policyholders and meting out disciplinary action."

RunTime: 30
OutCue: "..they're buying."
Contents: "The company has begun instituting certain systems that are models for the industry. That we will now have virtually everybody who purchases a policy from Prudential will receive a call shortly the visiting agent by a noncommissioned underwriter who will, among other things, ask the policy owner if they understand the coverage that they purchased and the way their paying for it."

New Jersey Department of Insurance spokeswoman Anita Kartalopolous says this measure is good news for the insurance industry...

Actuality: Kartalopolous
RunTime: 23
OutCue: "..with before."
Contents: "I think every insurance company is concerned right now because this is a problem on a national basis and it was really borne from the commission structure by which agents are paid. The only way to make money is to sell policies and who's a better prospect than somebody you've had a successful relationship with before."

Prudential is not the only company that's been targeted for churning.

This year, New York Life settled a nationwide class action law suit..instigated by sales tactics like 'churning.'

And two years ago, Met Life settled a class action suit for other deceptive sales tactics.

So how do you make sure you don't become the victim of a deceptive sales practice?

First.. determine the type of insurance you need.

Tom Bixby says consumers should know the difference between the two types of life insurance...

RunTime: 27
OutCue: "...and savings."
Contents: "Term life insurance, you simply buy an insurance policy and if you die the benefits are paid. With a whole or universal life insurance, you buy that same insurance, but in addition to that, you put some money into some kind of a savings program. It might be a mutual fund, it might be bonds. But it's both insurance and savings."

Bixby says the nature of whole life policies can cause problems...

RunTime: 23
OutCue: "...causes problems."
Contents: "The whole life or universal life insurance are the types people get in trouble with when they're buying from. For example, in this Prudential settlement, because it's the cash value of the savings component that life insurance causes problems."

He thinks people are better off buying term policies...

RunTime: 13
OutCue: "...are clearer."
Contents: "It's easy to get confused about what money is paying for life insurance and what is paying for investments. And if you keep the two separate, I think things are clearer."

Bixby recommends buying term life insurance and making investments separately.

Regulators say the bottom line is to make certain you understand what it is you are buying.

And..if a sales agent cannot answer your questions in a way that makes sense to you, be leery.

For K-B-I-A, I'm Tracy Sadeghian.