Three former supervisors in the corporate investigations division of the legal department of the Prudential Insurance Co. of America have filed a lawsuit in a state court in New Jersey against Prudential along with Deborah Bello, the insurer’s chief regulatory officer, alleging that a life insurance program called “MyTerm,” created in 2014 by Prudential with Wells Fargo Bank, had a large number of similarities to how Wells Fargo had opened fraudulent bank accounts.
In response to the allegations, Prudential Financial Inc. (NYSE: PRU) has announced that it will suspend the distribution of MyTerm policies through all Wells Fargo bank branches and website, pending the results of Prudential’s review of how the product is sold by Wells Fargo.
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Launched in 2007, MyTerm is a simplified issue term insurance product that was created to give customers greater choice and access to life insurance through a self-assisted, technology-enabled application process. In June 2014, Prudential entered into a distribution agreement with Wells Fargo, whereby the MyTerm product was made available to Wells Fargo customers through self-service kiosks in Wells Fargo bank branches and its website.
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Wells Fargo recently acknowledged that bank employees had created at least two million fraudulent bank accounts. That led to nearly $200 million in fines being imposed on the bank — and to its firing of more than 5,000 employees.
According to the plaintiffs in the Prudential action — Julie Han Broderick, Darron Smith, and Thomas Schreck — the MyTerm life insurance program fraudulently targeted unsophisticated, low income individuals who otherwise were unable to obtain insurance policies through conventional means. The plaintiffs alleged that applicants for MyTerm policies, who were Wells Fargo customers, were not required to submit “any meaningful medical information about themselves” as part of the application process.
As alleged by the plaintiffs, the MyTerm policies had low premiums and were designed to be self-service and purchased only at kiosks located at Wells Fargo or on home computers using Wells Fargo credit cards or Wells Fargo checking or savings accounts because Wells Fargo representatives were not licensed to sell insurance.
According to the plaintiffs, after learning as early as January 2015 of an extraordinarily high “lapse rate” in these policies, Prudential sent a survey to MyTerm policy clients to determine the cause of the high lapse rate. Those surveyed, the plaintiffs asserted, ultimately showed that:
- More than 700 emails were returned as undeliverable.
- Twelve clients cited as the reasons for the cancellations that they did not understand the policy or even know about the policy premiums.
- At least one client in Arizona complained of high pressure tactics from a Wells Fargo representative who was trying to sell insurance to a college student who did not need coverage.
Prudential took no action in response to the survey results, the plaintiffs asserted, until August or September 2016, when it conducted an inquiry into whether a fraud scheme similar to the fraud relating to Wells Fargo bank accounts had occurred at Prudential. The plaintiffs asserted that Prudential’s review found, among other things:
- A 70 percent lapse rate among the MyTerm policies sold in 2014.
- Spikes in sales near the end of each quarter for MyTerm policies.
- MyTerm policies had been sold predominately to individuals with Hispanic sounding last names concentrated in southern California, southern Texas, southern Arizona, and southern Florida.
The plaintiffs alleged that in or about late September, the CID received a call on its fraud hotline from a client located in Arizona stating that he had not purchased a MyTerm policy and wanting to know why he had received a lapse notice. The plaintiffs said that the CID determined that the MyTerm policy had been opened using a Wells Fargo bank IP address and that the funds had come from a Wells Fargo bank savings account that the Arizona client said had contained a small balance and that he had never used.
The plaintiffs said that they concluded that someone had fraudulently purchased a MyTerm policy using the Arizona client’s name; had used his savings account for the first low premium payment; and then had tried to cancel it before another withdrawal was made.
Moreover, they alleged in their complaint, the corporate investigations division identified “numerous other clients with experiences similar” to that of the Arizona client, where a MyTerm policy was opened, one premium paid, and the policy cancelled before the next payment was due.