COLI Fraud

[Guest kkirk]

Our firm has a large public company which bought significant amounts of COLI (corporate owned life insurance). The broker appears to have committed fraud, unfair sales practices, etc. Our client has filed a law suit.

Has anyone else been involved in any fraud or unfair sales practices cases?

[Guest KL Susac]

Over the past several years, there have been an increasing number of compaints and/or lawsuits filed regarding life insurance practices. Most, as far as I understand the issues, are arising out of sales of variable life insurance policies that have had earnings rates misrepresented.Often policies are illustrated with aggressive earnings assumptions that show premiums being required for only a few years. After a few years policy holders find that the assumptions have not held and the policies require additional premiums to prevent lapse. This may or may not constitute fraud; it would certainly depend on the circumstances.

[Guest Blaverick]

KKirk, I'm curious. Without divulging any client privledged information, what was it that brought the need to pursue legal recourse? Most insurance people don't understand the accounting aspect of nonqualfied plans. With COLI as with any fianced plan there is a charge to earnings and in a pulbic company that could be a serious issue. Was this part of the problem?

[Guest kkirk]

Actually, most of the fraud cases currently have little to do with lack of knowledge or mistakes by brokers. The fraud was committed by brokers purposefully making false representations, concealing vital facts and not delivering specific COLI contracts as illustrated during the sales process.

Most large companies were unable to properly analyze the sales illustrations and never had a formal audit performed on the COLI. There are alot of plans with tens or hundreds of millions of cash value in COLI, which were installed under fraudulent or questionable circumstances.

I hope this helps.