Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, November 22, 1995 TAG: 9511220058
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: Associated Press
DATELINE: HARTFORD, CONN. LENGTH: Medium
Prudential Insurance Co. agents misled dozens of customers into taking out new policies and falsely promised there would be no out-of-pocket expenses, a state investigation alleged Tuesday.
Connecticut officials will consider harsh penalties against Prudential for the alleged ``churning'' incidents, including full reimbursement of the victims and possible license restrictions, said Attorney General Richard Blumenthal.
The findings were the latest in a string of troubling news for the nation's leading life insurer. On Friday, a court approved a settlement under which Prudential will pay $110 million to investors who lost money on limited partnerships sold by the company's securities division in the 1980s. Prudential has already paid out $800 million to duped investors.
Also last week, Prudential announced a reorganization and plans to cut $800 million in expenses and 1,700 jobs. The insurer is struggling to reverse a $1 billion loss last year.
``Deceptive sales practices are and always have been strictly against Prudential policy,'' said spokesman Dick Riley. ``Employees found to have practiced them are subject to disciplinary action.''
Riley said Connecticut's investigation is based on complaints over a 10-year period and represents a fraction of the 300,000 Prudential policies in the state.
Connecticut investigated 59 complaints about Prudential life insurance policies, Blumenthal said. Other states, such as California and Illinois, also have investigated the practice.
``Churning'' is when an insurance company uses the cash value and dividends of an existing policy to pay for more insurance, he said.
Blumenthal said people who followed this plan on the advice of Prudential agents eventually depleted the value of their old policies.
They ended up paying for the policies, despite promises that no out-of-pocket expenses would be required, he said.
The report also alleges this practice was encouraged by Prudential's management. Agents got bonuses for the number of sales they made and were pressured to get clients to sign on to the ``churning'' system, he said.
by CNB