The Bad Brunch – National Underwriter’s 2013 Rogue’s Gallery

The Bad Brunch – National Underwriter’s 2013 Rogue’s Gallery

The life and health insurance industry, as we’ve seen in 2013, has had its own share of general business problems, aside from any man-made issues such as acts of fraud or a failed website. Like an unsuspecting outlier out to harm an industry working for the physical and financial health of society, these Rogues — either intentionally or unintentionally — have caused some of society to form a different view of an industry constantly trying to better its reputation.

By Emily Holbrook, Bill Coffin, Allison Bell, and Warren S. Hersch
Artwork by Tim Foley Illustrations

• #10

James A. Guest

James A. Guest, the CEO and president of Consumer Reports, was an insurance commissioner in Vermont back in the 1970s. At Consumer Reports, he’s been part of an organization that’s pushed for tough insurance product and insurance sales practices standards for decades.

Guest has earned a spot on the list for being a representative of some of the groups that claim to speak for consumers but lost their tongues when federal officials did a questionable job of implementing the Patient Protection and Affordable Care Act (PPACA) programs.

This year, Consumer Reports’ lobbying arm, Consumers Union, along with other advocacy groups, have lobbied hard against imposing tough training or disclosure standards on “their reps” — PPACA exchange navigators.

Consumers Union told the Obama administration in May that federal agencies should set uniform navigator standards; that navigators should not get paid by agents, brokers or stop-loss insurers; and that the U.S. Department of Health and Human Services should “actively monitor and intervene, as necessary, to ensure that state licensing, certification and other requirements do not interfere with navigators’ abilities to fulfill all of their legal responsibilities.”

We thought of comparing the Consumer Reports stance on navigators with its approach to the sudden, nightmarish curtailment of PPACA Preexisting Condition Insurance Plan benefits that took place earlier this year. In other words, the shafting of consumers who are in the middle of getting organ transplants.

We looked for some policy statement expressing Consumer Reports’ or Consumers Union’s outrage toward this and found a February brief urging individuals to “Act fast to get this health reform benefit.” No expression of outrage, not even an expression of mild sorrow, just advice to those slowpokes with iron lung machines to move it with the paperwork already.

• #9

Hugh R. Hinsinger, Jr.

Hugh R. Hinsinger, Jr. worked as a financial advisor and was entrusted with many clients’ finances, including those of his parents. But Hunsinger, 49, of Pine Brook, New Jersey, was not interested in his fiduciary responsibility. Greed was the only thing on his mind.

In August, Hunsinger pleaded guilty to second-degree theft by unlawful taking after it was revealed that he defrauded his parents out of more than $1.3 million while serving as their financial advisor.

According to the Financial Industry Regulatory Authority, Hunsinger told his parents that he was selling securities they owned to invest in new insurance or securities products. Instead, Hunsinger deposited the funds into bank accounts he controlled. The complaint also alleges that Hunsinger recommended that his parents invest in a deferred combination variable and fixed annuity. Hunsinger, formerly of Lincoln Financial Advisors Corporation, provided his parents with documents that contained information, based on a historical illustration, concerning withdrawals, contract values, cash surrender, average annual returns and standard death benefit. Hunsinger sold the securities in the account but never bothered to purchase the annuity.

“For years, the victims in this case believed that their son was investing money on their behalf,” acting state Attorney General John Hoffman said in a statement. “Instead, he was siphoning their money for his own benefit.”

Under the plea agreement, the state recommended that Hunsinger be sentenced to three to five years in state prison and that his insurance producer license be suspended for a period of five years. Hunsinger will also be required to pay back $1,354,496 to his parents. For his sheer lack of heart and morals, Hunsinger justly earns the number nine spot on our list.

• #8

All State Insurance

In July, Allstate sold its Lincoln Benefit Life to Resolution Life, a British financial services firm, for $600 million. With this move, Allstate essentially abandoned the consumer segment served by independent life insurance and annuities agencies. Allstate promoted the sale to Resolution Life Holdings as a benefit, as the firm estimated it would reduce required capital in Allstate Financial by approximately $1 billion.

Some in the industry, however, viewed it as a less-than-ethical maneuver, feeling as though Allstate sold off a perfectly good, profitable division to a company they knew would liquidate it instead of selling to a buyer who would keep it going. Many at Allstate believed Lincoln Benefit to be a great unit, and many of their people were bewildered at why Allstate would do this. One insider, who confided in National Underwriter off the record, felt that Allstate didn’t have to handle it the way they did and that there were alternatives that would have prevented shuttering the division — and laying off employees in the process.

Allstate is not the only company that decided to ditch its life insurance unit in 2013. AXA SA sold its life insurance unit to Protective Life Corp. and Sun Life Financial sold its variable annuity business to Delaware Life Holdings. But for Allstate, the sale left employees and consumers wondering if current policies would be thrust into the spin cycle of new ownership every few years.

• #7

Florida Department of Health

In September, the Florida Department of Health blew the chance of calmly trying to bring order to the “Wild Exchange West” by sending out a memo telling local health department directors to keep exchange navigators away from county health department offices. Department officials first said the order went out because county health departments lack the space to provide the navigators with privacy-protecting private offices. But the reasons the department used to justify the memo seem to have evolved over time, while FlaglerLive and Health News Florida never found evidence the department had sent out similar memos concerning similar outreach efforts.

Whatever the true reasons for the memo were, it surfaced at an awkward time and seems to have encouraged the possibility of getting consumer groups to think harder about exchange consumer protection issues further into the future.

See also: State-based exchange status map

And, by the way, like Consumer Reports, which earned a mention in our Rogue’s list by seeming to care too little about navigator standards, the Florida Department of Health was pretty quiet about the abrupt curtailment of PPACA Preexisting Condition Insurance Plan benefits earlier this year.

The message: Helping consumers fill out an exchange plan application in a county health department lobby is a terrible idea, and forcing a man who’s about to get a liver transplant to find a new surgeon and accept a higher out-of-pocket spending maximum is quite the bore. 

• #6

Richard Allen Freer

Richard Allen Freer, of Palmer Township, Pennsylvania, was once the president of a local bank, and then a rep for Aviva before he struck out on his own as a financial advisor. But that all came crashing down when Northampton County District Attorney John Morganelli charged Freer with 272 different counts related to a Ponzi scheme he ran for the last 15 years, bilking 82 different clients — some of them friends — out of some $10 million.

One victim, Joan Curto, a widow whose 80-year-old husband died two years ago, said Freer attended her husband’s viewing and visited her home the day he died — all while pocketing the money due to her. Curto has a few choice words for Freer, should she ever encounter him again: “What does it profit a man to gain the whole world, only to suffer the loss of his own soul?”

Local papers took Freer’s case as cause to raise a skeptical eyebrow at the larger financial services industry, and to suggest that Ponzi schemes could be lurking behind any corner. Freer is currently being held in general population in Northampton County Prison, and DA Morganelli has made it clear that he hopes Freer will die there.

Freer is still innocent until proven guilty in a court of law, but it does not look good for him at the moment. His spot on this list is for the disrepute his actions have already brought upon all financial advisors; if he is convicted next year, he can expect a higher place on this list. And if he is found innocent? Then Morganelli gets his spot.

• #5

Ben Lawsky

Mr. Lawsky earns the number five spot for his lack of leadership at the helm of New York’s Department of Financial Services (DFS). His department levied hundreds of millions of dollars in fines to various lawbreakers, and then watched the money all dump into the state’s general treasury fund (read: Andrew Cuomo’s Presidential Campaign war chest). Cuomo and Lawsky go way back and Cuomo has made clear his strong desire to run for president in 2016, while Lawsky is nothing short of a willing pawn in Cuomo’s political passion. Many see Lawsky’s aggressiveness as an attempt to undermine New York Attorney General Eric Schneiderman, Cuomo’s successor.

All this while Lawsky allowed the structured settlement annuity holders from the Executive Life Insurance Company of New York debacle to endure unjust financial ruin while the state approved of the company’s draconian liquidation plan. And has Lawsky held anyone at the New York Liquidation Bureau accountable? Of course not.

Meanwhile, remember Superstorm Sandy? According to one source, Lawsky failed to remove the department’s records on insurers from the DFS’s flood-prone office in lower Manhattan, so when the tides rushed in, the records were destroyed. When you can’t be bothered to keep hundreds of innocent families from being destroyed financially, moving boxes of paper are probably low on the priority list, as well.

• #4

Rachel Abelson

In 2008, producer Glenn Neasham sold an annuity to 83-year-old Fran Schuber of Lake County, California, who was later revealed to be suffering from early stages of dementia at the time of the transaction. California law allows for annuities to be sold to clients as old as 85 and Schuber’s annuity resulted in a $40,000 profit for his client. And as far as Neasham could tell, his client was lucid at the time of sale.

None of this prevented Lake County District Attorney Rachel Abelson from throwing the book at Neasham, however. He was arrested in 2010 and charged with a felony count of theft from an elderly individual. In 2011, he was sentenced to 90 days in jail with three years probation. His insurance license was revoked, his income fell to just $20,000 annually and his family lost their house and were forced to live off food stamps.

Neasham appealed the verdict and went free on bail pending that appeal, and ultimately, in October of this year, his charges were reversed. But it destroyed his practice, cost him a fortune in legal fees, and put him squarely in the “guilty until proven innocent” box. Abelson undoubtedly saw her actions as trying to protect Lake County’s large elderly population. But destroying a man innocent of any crimes on incomplete evidence isn’t the way to do it.

• #3

Ben Bernanke

Ben Bernanke’s term as Federal Reserve chairman comes to an end January 2014. From the life insurance industry’s perspective, his departure is long overdue.

As Fed chief, Bernanke presided over a long run of abysmally low interest rates and companies have found it increasingly difficult to make money on hedging strategies sufficient enough to make good on living benefit guarantees, most notably with variable annuities.

Result: Profit margins have suffered, forcing companies to revamp their products by offering less generous guarantees and/or charging more for them. In some cases, insurers have felt compelled to jettison once profitable business lines.

Witness the sale in October 2012 of The Hartford’s individual life unit to Prudential Financial; SunLife’s decision in December 2011 to halt sales of its domestic U.S. variable annuity and individual life products; and Genworth Financial’s announcement last January that two of the carrier’s units — Genworth Life Insurance Company and Genworth Life Insurance Company of New York — would stop accepting new applications for Genworth’s multi-life and LTC Business Solutions programs.

To be sure, low interest rates aren’t solely to blame for insurers’ woes. Yet, life insurers and the analysts that track their financials consistently cite low interest rates as the chief macroeconomic threat to the businesses. And so Fed Chairman Bernanke has consistently drawn the industry’s ire.

Many say the criticism is unjustified, believing the Fed’s quantitative easing has effectively counteracted fiscal policy guided by a misplaced focus on reining in federal deficits. Point noted. But the fact remains that financial services companies will continue to be handicapped so long as interest rates remain artificially low. And for that, Mr. Bernanke remains a veteran Rogue.

• #2

John Boehner

The beleaguered Speaker of the House became the face for Republican opposition to Obamacare when the GOP took control of the House during the 2010 midterm elections. But what has he managed to accomplish since then, especially on behalf of those in the business community most angered by PPACA’s passing? Not much.

The government shutdown in October, which has been an unmitigated disaster for Republican approval ratings and for their ability to collectively negotiate with the Obama administration, was the work of a Tea Party contingent Boehner proved powerless to wrangle. For those in the health insurance industry who stand opposed to PPACA, all Boehner did was convince people that PPACA was no longer a battle worth fighting, that the Republicans were a spent force, and that Democrats could already begin to look forward to 2016.

There are those who have suggested that Boehner hoped the Tea Party might exhaust itself fighting PPACA, and once spent, the rest of the GOP could get back to work advancing its priorities on other fronts. If so, that’s a decent play to make, but a risky one. The Tea Party is a passion movement, uninterested in dealing itself in to the traditional Washingtonian power channels. Any deals made with them are done at the deal-maker’s risk, which Boehner now knows only too well.

• #1

HealthCare.gov

There is no individual or organization that deserves the number one spot more than the federal health care exchange website HealthCare.gov. And we must note that President Obama, Department of Health and Human Services Secretary Kathleen Sebelius and Centers for Medicare and Medicaid Services Administrator Marilyn Tavenner also share in this infamous award.

Not long after the official Oct. 1 open enrollment date, those involved with the site — and users looking to sign up — began reporting problems. In fact, it was reported that only three in 10 applications started actually reached completion.

In late October, at a hearing organized to analyze the problems faced by the federal exchange, Officials of CGI and Optum/QSSI, two of the key vendors, admitted that months of end-to-end testing — not the days or last two weeks before launching — is the industry standard for a complex website being used to solicit applications for insurance policies.

The Republicans claimed that almost $175 million in funding was more than enough to build a successful site, while the Democrats claimed that Republicans sabotaged the site by pressuring states to refuse to build their own online marketplace, steering consumers instead to the federal one, which was not built for such a customer size. Then, as if bugs within the website weren’t enough, the administration was faced with security issues involving the site, especially after reports surfaced of one applicant’s personal information being shared with another applicant. The failed site drew so much criticism from consumers, politicians and even PPACA supporters that the chief information officer for the CMS, Tony Trenkle, resigned in November.

In essence, the administration is attempting to run the biggest startup in the world, without having anyone on board who has run a startup, let alone a business.

Source: LifeHealthPRO, Dec/02/2013.

More info: http://www.lifeandhealthinsurancenewsdigital.com/lifeandhealthinsurance/201312#pg1