Who or what are those forces doing harm — either intentionally or unintentionally — to the life and health insurance industry? This year, we polled our readers and reviewed our own coverage to determine the top 10 culprits, which now make up the 2014 Rogue’s Gallery. From fraudsters to political pundits to government organizations, the following are this year’s Rogues.
What Your Peers Are Reading
Janet Yellen Janet Yellen took over from Ben Bernanke as the Federal Reserve chair in February.
She seems like a nice person. She has a bachelor’s degree from Pembroke College and a doctorate in economics from Yale. She has won teaching awards. Forbes has named her the second most powerful woman in the world, behind Angela Merkel, but ahead of Melinda Gates.
But she is also a rogue.
Last year, we named Bernanke because of his role in presiding over a long run of fiendishly low interest rates. The Fed has pushed interest rates close to zero to help shaky banks, the U.S. Treasury, and well-connected hedge funds and publicly traded corporations get “free money.”
All of these co-conspirators are, of course, getting their “free money” by ripping off all of the savers of the world – the people who are counting on getting a modest but respectable level of rent, or interest, from the money they are leaving in the hands of banks, money-market funds, and issuers of high-rated bonds.
That includes ordinary retirees, pension funds, issuers of annuity products that offer any kinds of guarantees, issuers of long-term disability insurance, and issuers of long-term care insurance.
Yellen has continued the practice of helping the free-money gangstas keep the party going for the richest 0.001 percent, while not doing much of anything to get any of the free money flowing to the well-connected to flow to the people who are trying to prepare for the future.
Some have noted that insurers issue bonds as well as investing in bonds, and that some of their operations, and the benefits of some of their customers – including baby boomer savers with adjustable rate mortgages — benefit from low rates. Well, sure.
But the beneficiaries of the low rates are all feasting off of the dashed dreams of people who went without fancy food or fancy trips to try to put money aside for the future. That’s not very nice.
Jacob Lew Why are life insurers being labeled systematically important financial institutions? That’s a question that many in the industry, not least among them senior executives of the targeted insurers, are voicing with growing alarm.
And they’re pointing an accusing finger at the SIFI designator-in-chief: Jacob Lew, head of the Financial Stability Oversight Council (FSOC) and the U.S. Treasury Secretary. He has much to answer for.
That starts with the FSOC’s “preliminary” decision on August 4labeling MetLife a SIFI, a designation that groups the company with other non-bank SIFI designees: AIG, GE Capital and Prudential. MetLife President and CEO Steven Kandarian immediately objected to the ruling, noting the company might seek remedies available under the Dodd-Frank Act to contest the designation.
As well he should. If the designation stands, MetLife would be held to harsher capital, leverage and liquidity requirements by state regulators and the Federal Reserve Board.
This comes at a time when MetLife, like so many other insurers, are facing increasingly burdensome regulatory demands. They’re also being challenged by pressures — rock-bottom interest rates, non-traditional competitors and volatile markets — that are taxing balance sheets as never before.
The SIFI designation might be justified if there were a rational basis for it. But as a letter written by Rep. Scott Garrett (R-NJ) to Secretary Lew stated, the FSOC’s policy seems to be to “designate first and ask questions later.” Supported by 6 other U.S. House members, the letter argued that insurers “didn’t get the public analytical effort that the asset management industry did in the FSOC’s ‘rush’ to designate firms as SIFIs, leading to disparate treatment of insurers.”
Like so many actions by regulators (recall FINRA’s earlier failed attempt to regulate indexed annuities as securities) the FSOC’s ruling on MetLife looks like a naked power grab: bringing the New York-based insurer under its purview because it has the will and ability to do so.
One can only hope that MetLife will ultimately secure redress under Dodd-Frank; or, failing that, convince the FSOC to craft metrics, rules and stress tests less onerous than those governing the colossal-size banks for which they were originally intended.
Michael A. Horowitz and Moshe Marc Cohen On March 14, 2014, the Securities and Exchange Commission filed charges against this duo for their part in an $80 million fraudulent variable annuity scheme from 2007 to 2008. According to the SEC, Horowitz, a Morgan Stanley broker at the time, looked to exploit the death benefit and optional bonus credits of the VAs by identifying terminally ill individuals in Southern California and Chicago.
Horowitz teamed up with Los Angeles-based Rabbi Harold Ten, who would identify individuals who would not object to Michael using their name and Social Security number on an annuity in exchange for compensation.
The SEC’s Enforcement Division alleges that “Horowitz, anticipating that a patient would soon die, sold VA contracts with death benefits and bonus credit features to wealthy investors, designating the terminally ill patients as annuitants and marketing the scheme as a way to win short-term investment gains.”
The primary criteria Horowitz employed in selecting hospice patients to designate as annuitants were “their terminal illness” and “the likelihood that they would die soon.” And when they did in fact die, the investors collected death benefit and bonus credit payouts. According to the SEC, the duo generated more than $1 million in sales commissions alone through deception, falsification and other fraudulent acts.
In July, Horowitz settled with the SEC, agreeing to pay disgorgement of $347,724, plus prejudgment interest of $103,025 and a $400,000 penalty. He is also barred from associating with a broker-dealer or investment advisor or from participating in any penny stock offering. Cohen, a former Woodbury Financial Services broker, was required to forfeit $766,958 plus interest along with civil penalties as deemed necessary by the SEC. The SEC also requested an order barring Cohen from the securities industry for life.
The Fraudulent Four In a sickening misuse of government funds, 106 people were charged in January with what New York officials have called the largest fraud ever perpetrated against the Social Security disability system, a scheme stretching back to 1988 in which as many as 1,000 people – many of whom were police officers and firefighters already collecting pensions from the city – were suspected to have bilked the federal government out of an estimated $400 million.
The fraudsters had been coached on how to fail memory tests, feign panic attacks and, if they assisted after the Sept. 11 terrorist attacks, to talk about their fear of airplanes and entering skyscrapers. These people were not smart enough to keep their act going on social media. Prosecutors found Facebook photos of the “disabled” fishing, riding motorcycles, driving jet skis, flying helicopters and playing basketball, even though most reported they were so impacted, they could not leave the house.
Leading this massive scheme was Raymond Lavallee, 83, a Long Island lawyer who started his career as an FBI agent; Thomas Hale, 89, a pension consultant who investigators say filled out applications for the scammers; John Minerva, 61, a former police officer who works for the Detectives’ Endowment Association; and Joseph Esposito, 64, a retired NYPD officer, who coached the applicants to act symptomatic during exams conducted by psychiatrists for the Social Security Administration.
In August, Esposito plead guilty and was ordered to pay $734,000 in restitution. He will likely be sentenced to less than four years in jail. John Minerva pleaded guilty to grand larceny and conspiracy charges for his role in recruiting retired FDNY and NYPD officers. He was ordered to pay $315,000 in restitution and will likely serve less than three years in jail. Raymond Lavallee and Thomas Hale have pleaded not guilty and are awaiting trial.
Oregon Gov. John Kitzhaber John Kitzhaber is a former emergency room surgeon and health care administrator who has probably saved many lives over the years.
He has been the governor in Oregon since January 1995.
He has tried to protect his state’s salmon – which are certainly delicious and healthy fish – and he has supported continuing education programs for physicians and the practice of evidence-based medicine. These are all worthy endeavors.
But Kitzhaber is also one of the Democratic governors who supported the Patient Protection and Affordable Care Act (PPACA), got huge sums of money from the U.S. Department of Health and Human Services (HHS), and expressed great love for it – then failed to follow through to make sure its information technology systems would work.
The state’s exchange, Cover Oregon, took a bossy approach to exchange management. It decided to act as an “active purchaser,” meaning that it would dicker with exchange plan issuers over benefits, not simply have the exchange act as a clearinghouse for all plans offered by all qualified, interested issuers.