Exposed: Same Insurers Systematically Swindle Millions of Canadians, Americans, and Hong Kongers

Prudential, Sun Life, Manulife

This post is divided into four sections. Each section contains a short video about insurance scandals that rocked Canada and America in the 1990s. The guilty insurers were hit with numerous class actions lawsuits, many of which were settled, resulting in compensation for the victims.

The fraudulent sales practices exposed in the videos are the same types of practices which are rampant in Hong Kong. Unfortunately for Hong Kongers, their undemocratic, corporate-controlled legislature has resisted introducing class action lawsuits. As a result, millions of ripped off consumers have no affordable, practical way to access justice through the legal system.

Part I

Manulife Exposed for Pushing a Ripoff Life Insurance Product and Destroying the Retirement Savings of Countless Canadians

The Hong Kong government set up the MPF system to encourage people to save for their retirement. The Canadian government introduced RRSPs for the same purpose. An RRSP, Registered Retirement Savings Account, is a tax-advantaged account which allows Canadians to invest in mutual funds, stocks, bonds, and certain other assets.

In the documentary below, produced by CBC Market Place, Manulife—a Canadian insurer with a big office in Hong Kong—is exposed for pushing a ripoff cash value life insurance product named “The Investor”.

“The Investor” is an RRSP, but unlike other RRSPs, it combines an investment account with life insurance and has a huge surrender penalty. If a policyholder tries to exit anytime before 10 years have passed, she could lose up to 100% of her investment. If a policyholder dies, the insurance company keeps her investment and only pays out the insurance coverage to the beneficiary.

According to Bill McCleod, a business professor interviewed by CBC, “I can’t believe that anybody that understood a contract like this would sign it.”

According to Bob Barney, former president of the Independent Insurance Brokers of Canada, “The agent wants to sell it [“The Investor”] because it pays a whopping big commission by contrast to other RRSP programs, and the company wants to sell it because it has a fat overpriced insurance policy in it that’s going to be very profitable.”

The documentary later reveals that the commission for selling “The Investor” is 40%. The commission for selling other RRSPs is 1.5%.

CBC obtained an advertisement directed at brokers, which stated, “Because the Investor offers protection (or insurance) as well as savings, it gives you [the broker] the type of return you’d expect only from a life (insurance) sale.”

“The Investor” may be attractive to brokers, but according to Bob Barney, “I have never found a product that put life insurance together with savings that did better for the consumer than an insurance policy and a savings program that were separate.”

He says if you put $1,000 in a regular RRSP, you can transfer the money, take it out, whatever you want. But if “you put that same $1,000 in ‘The Investor’, you can kiss it goodbye”.

CBC obtained an internal Manulife document that advised agents on “how to sell surrender charges”. The document stated, “Most of the time, you won’t even discuss surrender charges with your client.”

In other words, you defraud them.

Part II

Sun Life and Manulife Hit with Class Action Lawsuits for Mis-selling “Vanishing Premium” Life Insurance

The documentary below, produced by CBC Market Place, tells the story of how several Canadian insurers mis-sold “vanishing premium” life insurance policies to hundreds of thousands of Canadians.

The sales pitch was this: You pay premiums for a fixed number years, and then, the earnings on the cash value account will be so much that those earnings will pay the premiums for you. The policy becomes self-funding. The premiums “vanish”.

Many buyers later discovered (often as they were retiring) that the returns on their cash value account were so pathetic that they’d have to keep pumping in more money after the “fixed period” in order to keep their policy from imploding. Premiums had not “vanished” as promised.

Sun Life and Manulife—Canadian insurers with large offices in Hong Kong—were hit with class action lawsuits. Both companies agreed to compensate as many as half a million policyholders.

A CBC reporter states, “What’s surprising is that after thousands of complaints and two class action lawsuits, [CBC] Market Place found that these kind of policies are still for sale”.

CBC set up hidden cameras in a house and invited in an insurance agent from London Life to sell a “vanishing premium” policy to one of CBC’s undercover reporters. The insurance agent was caught on video misrepresenting the policy, trying to make it seem less risky than it actually was.

Sometime after CBC’s documentary aired, London Life was hit with a class action lawsuit.

In June 2001, CBC reported, “A class action lawsuit on behalf of 500,000 people who bought [vanishing premium] policies from London Life Insurance between 1980 to 1995 has been settled at $180 million.”

Part III

Prudential Busted for Systematically Defrauding Americans, Slammed with Class Action Lawsuit

Headquartered in London, Prudential is one of the largest insurance companies operating in both America and in Hong Kong. 

Below is a segment from a documentary aired on ABC News on Dec. 11, 1996, two days after Florida’s insurance commissioner threatened to ban Prudential from selling life insurance in the US state of Florida.

The documentary features interviews with ex- Prudential agents who say they saw deception on a daily basis, an embarrassing interview with one of Prudential’s executives, and excerpts from Prudential training videos that teach agents how to misrepresent insurance policies as non-insurance investment products, in order to facilitate sales.

Shortly after the documentary aired, Prudential was faced with a class action lawsuit, which Prudential agreed to settle. The lawsuit alleged that Prudential’s agents “persuaded customers to needlessly exchange life insurance policies for more expensive ones from 1982 to 1995.”

The Baltimore Sun reported, “As many as 10.5 million customers were victims of the practice, known as churning, which is designed to boost commissions.”

According to the Los Angeles Times, Prudential would eventually pay victims at least $410 million and as much as $1.2 billion.

[Note: A local Chinese victim of Prudential’s Hong Kong office has been in contact with The Rape of Hong Kong. The victim was mis-sold a 25-year ILAS policy.]

[Another Note: The full version of the documentary below could not be located online. However, there is a transcript. See HERE.]

Part IV

Canadians Go Dangerously Underinsured Due to Greedy Insurance Agents Flogging Exploitative, High-Commission Whole Life Products

The below documentary, produced by CBC Market Place, shows how millions of Canadians end up scandalously underinsured, due to the greed of insurers, who incentive their sales force to flog exploitative whole life products, rather than term life.

The impact of the scandal is made tragically clear through interviews with two widows. When their husbands unexpectedly died, they received death benefits which were inadequate to provide for themselves and their children. Their financial hardships wouldn’t have been nearly as severe if their husbands had been sold a term life policy with much higher coverage—for the same price—rather than a whole life policy that combined a ripoff savings plan with low coverage.

According to Professor Bill McLeod, “Most people who have whole life are badly underinsured, and the average death claims every year show that…There are two companies as we talk that are paying average death claims of less than $3,000. Can you imagine taking a check for $3,000 to a widow with a couple of kids?”

Broker Bob Barney, who sells term insurance, says, “I’m sick and tired of being considered a snake oil salesman. Life insurance agents are generally considered right there at the bottom of the barrel as far as people who conduct a profession in the public eye. And unfortunately, these selling practices [pushing whole life] really reflect negatively on it.”

[Note: At the end of the documentary, a CBC reporter states, “If you just can’t manage to save money and need a forced savings plan, then maybe whole life insurance is for you.” This is a stupid, dangerous remark. Whole life is a disaster for anyone who has trouble saving money. Such people (in fact, most people) inevitably cash in their policy early and face losses.]

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