ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Tuesday, March 11, 1997 TAG: 9703110102
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: NEWARK, N.J.
SOURCE: BLOOMBERG NEWS
STAFF WRITER MAG POFF CONTRIBUTED TO THIS REPORT.
The company has said it has retrained its sales force and fired 800 agents and managers.
A federal judge has approved a settlement between Prudential Insurance Co. of America and the millions of customers it misled over 13 years ending in 1995.
Following the ruling, Prudential will begin to repay an estimated $2 billion to customers who bought new life insurance unnecessarily, convinced by agents intent on boosting their own commissions. The practice is known as ``churning.''
Judge Alfred M. Wolin said that, ``after a careful review and consideration,'' the U.S. District Court in Newark had found that the settlement met standards of ``fairness, reasonableness and adequacy'' for the 10.7 million policyholders involved.
The settlement helps Prudential set to rest a case that has dragged on since July, when the nation's largest insurer agreed to pay $35 million in fines to regulators from 30 states and to set up a $100 million restitution program.
That $100 million, the minimum Prudential initially agreed to pay in its settlement last year with regulators, has now ballooned into as much as $2 billion or more, depending on how many policyholders actually file requests for damages.
In addition to the restitution, Prudential has faced the largest fines ever levied against an insurer. Prudential last month made separate settlements with five other states for an additional $35.2 million.
The Virginia State Corporation Commission settled with Prudential Feb. 13 for $384,200 as fines for Prudential's alleged violations of Virginia insurance law through misleading sales practices. That is far less than the company settled with some other states, including Florida. But Ken Schrad, spokesman for the Virginia commission, said the case arose in Florida,and Virginia relied on Florida's investigation rather than duplicating the work.
The commission has estimated that about 175,000 Prudential policies were sold in Virginia between 1982 and 1995.
Even if the number who file claims against Prudential is at the high end of expectations, Prudential is likely to survive the burden, said Larry Mayewski, an analyst at A.M. Best Co.
``It's clear the company has the resources to handle a pretty significant settlement,'' he said. Even so, costs of more than $1 billion will trigger a review of the insurer's claims-paying rating, Mayewski said, adding: ``The company's had a strong year in '96, and that would have to be factored in.''
LENGTH: Medium: 56 linesby CNB