I remember when cell phones were truly just phones. There was no internet browser and certainly no ability to download apps to make our lives easier. In fact, I remember when consumers had a choice between a “candy bar” style phone and a “flip” phone. An article I read during those days proclaimed that the flip phone was superior and would soon be the only style of phone that anyone would ever carry. And then Apple came along…
Fraud has also evolved over the years. In my younger days, when I would think about fraud, I envisioned an agent taking an application from a consumer and keeping the premium. It was simple. While that type of fraud persists today, there are also more complex types of fraud being perpetrated as well. For example, an insurance agent in New Jersey was recently sentenced to six years in prison for “…submitting hundreds of fraudulent life insurance applications to reap more than $1 million in commissions and bonuses…” according to a press release from the Office of the Attorney General of the State of New Jersey. The press release describes how the agent paid individuals for their identifying information, provided false employment, salary, and net worth information on the applications, and offered additional cash payments to individuals who agreed to open bank accounts in their own names. The agent used those accounts to submit direct-debit authorization forms which authorized the monthly withdrawal of premiums for those straw accounts. Definitely a more complex scam than pocketing a cash premium.
For compliance professionals, the key statement in the press release was that the agent, “…used some of the money he received to make some premium payments on the policies, but most policies lapsed for non-payment within a few months.” This underscores why surveillance reports are critical for insurance carriers. These types of reports allow insurance carriers to identify all sorts of exceptions and negative trends – including agent fraud. If an insurance carrier has a report that identifies higher than average lapse volumes or ratios by agent, the insurance carrier could identify this particular issue and take appropriate measures to mitigate the risk.
Your compliance program must continue to evolve to remain effective in mitigating sales practice risks. Otherwise, it’s like trying to use an analog Motorola StarTAC flip phone to upload a 16 megapixel image to your Instagram account.