The California Insurance Department is considering sanctions against Wells Fargo for placing insurance for their customers without their knowledge or permission.
According to an accusation delivered to Wells Fargo Bank and Wells Fargo Insurance, the department wants to suspend or revoke its license to sell insurance in the state. The accusation is the result of a department investigation that found that approximately 1,500 Wells Fargo customers were issued insurance policies and charged premiums without their knowledge or consent. It was easy to make them pay: The bank simply deducted premiums from their customers’ accounts. The transaction occurred from 2008 to 2016.
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The bank had earlier been accused by other regulators of opening unauthorized checking and savings accounts and credit card accounts, and adding lender-place insurance to vehicle loans even though there was insurance in force on the car.
The accusation said those activities and the latest insurance allegations all had a common denominator: incentive pay and aggressive sales goals.
The Insurance Department says Wells Fargo’s conduct shows it is “not of good business reputation,” is lacking in integrity, and shows incompetency or untrustworthiness. Further, the department is alleging, Wells Fargo knowingly misrepresented the terms or effect of an insurance policy or contract, and permitted its employees to sell insurance without a license.
Each of the allegations – any one of them, actually – constitutes grounds for suspending or revoking an insurance license and licensing rights, the department said.
“Consumers should not be treated like chattel by corporations who take advantage of and abuse the consumers' trust,” said insurance commissioner Dave Jones. “Companies that are licensed to transact insurance have an obligation to act with integrity, comply with all state and insurance laws and represent the best interests of consumers. When any producer violates consumer trust in the name of profit, it reflects poorly on the entire profession.”
Wells Fargo is expected to file a notice of defense.
Authorities said the improper insurance sales practices were concentrated in the bank’s Online Insurance Referral Program for renter’s insurance and simplified-issue term life, and other insurance products that required little to no underwriting prior to issuance.
Bank employees were expressly trained to not complete any part of the application for the customer – they couldn’t even swivel their computer monitors when seated at their desks to explain the insurance products. They were simply to refer customers to an in-branch computer kiosk or an insurance company website. The kiosks were supposed to be self service because Wells Fargo employees weren’t licensed to sell insurance.
But in an all-too-common refrain, customers complained that bank employees entered their information on a policy application with the assurance that customers were merely receiving a quote. In fact, those applications were later submitted to insurers for approval.
American Modern Insurance Group was one of several carriers that had an agreement with Wells Fargo. Jones said there were 1,258 unauthorized American Modern renter’s policies sold to bank customers in transactions that the Insurance Department said “went beyond simple referrals.” The insurer got complaints about policies being issued without authorization, and later stopped selling through Wells Fargo.
Assurant replaced American Modern in offering renter’s insurance through the bank, but its experience was similar. According to the accusation document, six unauthorized renter’s policies were sold. Assurant noted that, as of 2014, Wells Fargo’s business priorities were cross-selling and revenue, “with quality as the lowest priority.”
Wells Fargo also sold life insurance underwritten by Great-West Financial from 2011 to 2014 when that carrier also ended its participation. The reason: 184 unauthorized term life insurance policies taken out for bank customers.
Prudential replaced Great-West as the carrier offering simplified-issue term life insurance. Its agreement required customer to use a computer kiosk in the branch or a Prudential website, and specifically said bank employees could not be “involved in the sales, solicitation or negotiation of a [p]olicy ... no discussions can take place concerning the need for any specific amount of life insurance coverage nor any specific type of insurance policy.”
But it, too, discovered unauthorized insurance sales. According to allegations in an unrelated lawsuit filed by three former Prudential employees, some of the questionable applications sent in by Wells Fargo listed obviously false home addresses on Wells Fargo Drive or e-mail addresses like firstname.lastname@example.org. The lawsuit also alleged red flags pointed to:
• a 70-percent lapse rate for the MyTerm policies sold in 2014, the first year that Wells Fargo sold them;
• a spike in sales near the end of each quarter; and
• policies that were sold “predominately to individuals with Hispanic-sounding last names.”
Prudential suspended its referral agreement with Wells Fargo in December 2016.
Not the First Market Conduct Sanctions for the Bank
This isn’t the first regulatory rodeo for Wells Fargo. Last year, it paid $185 million to federal regulators to settle claims that the bank opened fraudulent deposit and credit card accounts (ICI, Dec. 19, 2016). A bank review found that there were approximately 3.5 million unauthorized deposit and credit card accounts opened from 2009 to 2016.
That development has President Trump’s attention, so don’t look for that fine to go down much. “Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased,” the president tweeted Dec. 8. “I will cut Regs but make penalties severe when caught cheating!”
Earlier this year, the company also admitted in a July 27 announcement that it had mismanaged its collateral protection insurance program which was supposed to add insurance to vehicle loans when there wasn’t evidence – either from the customer or the insurance company – that there was insurance on the car (ICI, Aug. 14, 2017).
Turns out, though, that Wells Fargo placed the insurance on more than half a million loans where customers had insurance in place, too. As a result, Wells Fargo will refund $80 million to 570,000 customers – including 20,000 who had vehicles repossessed.
Finally, in an Aug. 4 announcement, the bank said it had agreed to settle a lawsuit that claimed some Veterans Administration mortgage loans it originated shouldn’t have been eligible for VA guarantees. Wells Fargo has denied those allegations but says it will pay $108 million to the U.S. government anyway.
A Distortion of Culture & Aggressive Sales Management
According to California’s accusation filing, a Wells Fargo internal investigation concluded that the main cause of the improper sales practices was the “distortion of the Community Bank’s sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts.”
The report also concluded that bank leadership “resisted and impeded outside scrutiny or oversight and, when forced to report, minimized the scale and nature of the problem.”
In a statement to Insurance Compliance Insight, Wells Fargo said, “As we previously announced, Wells Fargo suspended online referrals of renters and simplified term life insurance products in December 2016 and initiated an internal review of those products. We have been cooperating with the California Department of Insurance over the course of this year.”
It is an open question whether suspending or revoking Wells Fargo’s insurance licenses will have much of an impact at the bank. Wells Fargo has been exiting the insurance business. It has sold off its commercial insurance brokerage and its crop insurance business, and last month said it was leaving the property & casualty personal insurance business as well (it said that decision isn’t related to the Insurance Department’s investigation). Wells Fargo is also licensed to sell accident and health insurance, and life insurance and annuity products.
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Dec. 11, 2017
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