Ch 15 Red Flags, Anti-selection & Fraud Flashcards
Anti-selection
situation, medical or financial, in which PI or agent conceal, falsify, or materially misrepresent info at the time of app to detriment of insurer. Includes simple avoidance of detection if one party has info another party does not.
Fraud
deceit, trickery, sharp practice or breach of confidence perpetrated for profit or to gain some unfair or dishonest advantage.
Collusion
secret agreement, especially for fraudulent or treacherous purposes, created to defraud another person of his rights. Can occur anywhere in sales process and underwriter must have solid training and critical thinking skills to be able to ferret out anti-selection practices.
3 primary red flags of hidden motivation uncovered by MIB
stacking of coverage
avoidance of requirements
early lapse or possible rebating scenario
Flags at time of underwriting
Extensive MIB activity
Stacking of coverage
Concurrent apps of smaller amounts
Requests to reduce face amounts
Excessive sales pressure
Lack of candor
Requests not to involve reinsurance
Foreign travel/trip insurance
Self-Employment
Elderly PIs w/ no med hx
Overseas assets/income/etc
Certain Irrevocable Life Insurance Trusts
Reinstatements at older ages
stacking
planned purchases of multiple policies for smaller face amounts through multiple carriers rather than purchasing 1 policy for larger face amount from 1 carrier
banding
pricing actuaries set premium rates for fully underwritten coverage as less expensive than SI coverage
Request not to involve reinsurance
red flag:
-could be other unknown apps in force, pending or applied for that already exceed total line of coverage requirements
-agent believes reinsurer will be more conservative
-reinsurer already has adverse knowledge from previous submissions or already requested addl requirements on fac basis.
Tools Used for Underwriting
MIB
Credit reports
US Fed income tax returns
Rx Database
Lab slip
SSN verification databases
3rd party financial records
USA Patriot Act form
Rx Database
record created when individual has Rx filled under Rx benefit program, by pharmacist w/in benefit provider network covered by Rx database vendor provider.
-shows name, address, phone # of prescribing dr, specialty of dr, dosage, # refills, dates prescribed
3rd party financial records
red flags:
no formal letterhead for firm/CPA
no printed name of CPA under signature
no professional credentials under name
no internet search engine info found
rebating
directly or indirectly offering or giving anything of value, which is not plainly specified in life insurance policy, as an inducement to purchase insurance
rebating red flags
-frequent replacement/lapsing of policies 3 yrs old or less
-trustee in CA or FL, where rebating is legal, agent or PI reside elsewhere
-target premium paid on all insureds to maximize commissions
-agent new to company and submitting large amount of premium in short period of time
churning
practice in which in force policy is replaced for purpose of earning addl first yr commissions
-illegal except in CA
-direct effect on lapse rates, must be in force 5-7 yrs to recover expenses incurred upon issue
types of premium financing
Recourse premium financing
Non-recourse premium financing
Hybrid premium financing
Recourse financing
fully collateralized loan arrangement w/ intention of holding policy to maturity
-done for estate liquidity needs and offers most advantageous loan rates, fees, spreads
-provides reassurance renewal premiums will continue to be received
Non-recourse financing
-borrower typically ILIT or LLC
-No recourse, liability to insured or estate
-policy only collateral
-if loan not repaid at maturity, lender forecloses on policy, assumes ownership, collects death benefit
-poses hidden tax & liability risks to insured - high lapse or settlement rates
Hybrid premium financing
-partial recourse designed for short time (2-5 yrs)
-PI required to refinance at end of loan into longer term recourse loan
Travelers: scam or con artistry for profit
Red flags:
1. nomenclature: frequent last names
2. occupations: unverifiable earned income, no W2 or paper trail
3. medical histories: concealed or undisclosed, exam subs
4. face amounts: stacking, low amounts
5. financial info: hard to validate
6. MIB activity: in force or pending apps not disclosed
7. geographic area: North Augusta/Aiken SC, Ft Lauderdale, Los Angeles, Chicago, Murfreesboro/Memphis TN, Brooklyn
writing agent distribution
mortality scheme
-agent and PI in collusion, use ‘stand in substitutions’ for exams
-agents in call center environment, agent and PI not known to each other, done over phone
-transpose digits in vital information
Agent Identity Theft
purpose of submitting fraudulent apps for commission payments
red flags:
-newly appointed agents from NV or CA whose apps involve large target premium amounts of $25K +
-PI’s occupation owner/self-employed
-address/phone numbers don’t match credit checks or internet searches
-agent contact info does not match vendor database
-agent difficult to reach/unresponsive
-case withdrawn if verification info requested or commissions held
STOLI
-even if sold to 3rd party, still counts in total LIF for UW policies
-intent to sell defies basic premise of life insurance - insurable interest
red flags:
-requests to split large policy into smaller
-recent changes of payor/owner/bene to unrelated business entity after issue or at end of contestable period
-elderly w/ impairments applying for large amounts inconsistent w/ previous patterns
-PIs w/ previous life settlement activity
actuarial lapse rate assumptions
price for various levels of random lapse rate activity at all ages & duration of years, systematic early lapse experience can adversely impact usual scope of projections (rebating, STOLI)
