Who Can You Trust to Rake Muck if You Can’t Trust the Muckrakers?

Last week, some reporters at Bloomberg came up with a pretty aggressive headline: Fallen Soldiers Families Denied Cash as Insurers Profit.

National Public Radio was not far behind: their headline read: Life Insurance Firms Profit From Death Benefits.

Holy profiteering, Batman! Did BP pay Prudential insurance to kick them off the front page? This one is pretty juicy. You don’t get much lower than the bottom-feeding off the bereaved families of those who made the ultimate sacrifice for their country.

 As the NPR story puts it:

Survivors of service men and women are told they’ll get a $400,000 life insurance payout. They don’t. Instead, Prudential — which has a government contract to provide life insurance for military families — keeps their money.

And as Bloomberg further explained, in a story about mother Cindy Lohman:

“You can hold the money in the account for safekeeping for as long as you like,” the letter said. In tiny print, in a disclaimer that Lohman says she didn’t notice, Prudential disclosed that what it called its Alliance Account was not guaranteed by the Federal Deposit Insurance Corp., Bloomberg Markets magazine reports in its September issue.

Is That Really Muck You’re Raking?

Now, Trust Matters readers know that I have been more than occasionally critical of untrustworthy behavior in the financial services sector. But something about this one just didn’t feel 100% right to me. 

I contacted a close friend who is a financial planner. “Is this as bad as it sounds?” I asked.

“Not really,” she said. “Pretty much that’s what happens to everyone. Someone dies, they really don’t want the check showing up at the graveside service, or worse yet at a wake.   Most families prefer to separate decisions about the distribution of money from the events memorializing someone’s death.”

She continued, "It just feels wrong to bury someone and then deposit a big check that was triggered by that very death. Creepy, basically. So the insurance companies, at least the ones I’ve seen, send you something that says you can have the money whenever you want, meanwhile we’ll put it in an interest-bearing account. The interest rate may be well below market – the spread on funds is pretty much how insurance companies make their money in the first place — but it’s not unusual. And they’re not in any big hurry to send benefits out to civilians either, as far as I know.”

At this point, the plot wasn’t exactly thickening—in fact, it was sort of thinning, as far as I could tell. Further articles suggested that the insurance company was not in a big hurry to tell people that they could get their money quickly, or that the interest rate was low, and that some of their actions could be interpreted as acting like banks.  But this looked like a small print kind of issue, the sort of garden-variety obfuscation that we have come to expect from things like credit cards and insurance policies.

Bad? Sure, but suddenly all those headlines about veterans and the VA began to seem a little misleading. This wasn’t about the VA, or veterans, at all.  We weren’t getting the whole picture, I feared.

Well, Something’s Getting Raked

Meanwhile, things were popping. Suddenly NY Attorney General Andrew Cuomo was sending out subpoenas about the scam. Defense Secretary Robert Gates pledged to help the VA in its investigation. The VA itself had already gotten into the action. And of course, congressmen had a (predictably outraged) opinion. Finally, there’s talk of a class action lawsuit pending.

At this point, I was reminded of yet another sad tale in the news lately: that of Shirley Sherrod. The lesson there, if you’ll recall (I know it was way last week), was not to jump to knee-jerk conclusions about apparently valid information that turned out to be taken out of context.

Except the Sherrod story came from an avowed right-wing vigilante; this story comes from Bloomberg News. I continue to believe there’s a very, very big difference.

And yet: how to make sense of this? How could experienced reporters from a business network come up with a headline about veterans, loaded with trigger-cues, but with a backstory that said nothing unique about veterans?

The answer started showing up a day later—from another business-savvy outfit not known for its radical politics, the Wall Street Journal Marketwatch. Read for yourself:

Randy Binner and Kevin Barker, life insurance analysts at FBR Capital Markets, questioned the [death benefit] outcry on Thursday.

"We find the very sharp and rapid regulatory response to this surprising and apparently unfounded," they wrote in a note to investors.

Accounts that life insurers offer to set up for beneficiaries are a long-established product feature that is optional for consumers, who can choose to take a lump sum in cash instead, the analysts said.

In fact, the practice is the essence of what insurers do everyday, they added.

"Investing funds ultimately due to customers in the general account to earn a spread over what is paid out quite simply describes the business of insurance," Binner and Barker wrote.

How Much Muck Can a Muckraker Muck if a Muckraker Isn’t Raking Muck?

Seems to me the worst case financial story here is another depressingly familiar tale of low-grade small-print-itis by the insurance industry. Hardly great, hardly trustworthy behavior—but far from the next great scandal either.

The much bigger story, I fear, is another mainstream news source failing to put a story into context. 

I’m one who believes that incompetence offers a far better explanation for screwups than do conspiracy theories; this is not a Breitbart situation. Maybe the reporters just didn’t appreciate that what they were seeing was insurance-related, rather than veterans-related. Though for a business news organization, that’s not too great either. The big problem is, the results—lack of context—are in the same category as Andrew Breitbart.  

So now who do we believe?

A couple key disclaimers: I am not an expert in insurance, or in the workings of veterans’ affairs. I have not spoken to the Bloomberg reporter on the case. I could therefore soon have egg on my face, so I will be watching the weekend news reports with interest to see if there’s an angle I’ve missed, and if I owe a mea culpa I’ll be on it quickly.

But one thing makes me think my gut may be right on this: Prudential closed up strongly on both Thursday and Friday.  And whatever else markets do, I believe they price pretty well. 

10 replies
  1. Barbara Garabedian
    Barbara Garabedian says:

    Charlie,  I am constantly dismayed about the waning attention span of the American public, the sad loss of comprehensive story coverage ( ala The Christian Science Monitor) and the rise of "sound bites" masquerading as news stories and the basis for electing politicians. We accept sound bites as gospel and don’t want to be distracted by listening or reading more than one version of a news story.

    While growing up, being informed meant reading through the Boston Globe, the Christian Science Monitor, The NY Times, the Wall Street Journal, the local paper, and watching broadcast news at 6 and at 11PM. I suppose we deserve what we get today. Who has the time to check for facts (editors /producers need to get the "nano-second bites" out before the competition); we don’t want comprehensive coverage (we’re too busy to read, so the majority of Americans get their news from Fox news or a trailer while watching a sports program); we’re lazy (its easier to have someone else develop a point of view); and, we don’t want to be bothered w/cumbersome details that we can’t understand (isn’t the comprehension level of the NY Times geared towards a 12 year old?).

     I  suppose in today’s world, a Woodward & Bernstein would probably be laid off after getting the initial "sound bite" out.


  2. Howard Wolosky
    Howard Wolosky says:

    The key is the actual interactions of the government and insurance compannies with beneficiaries. Hopefully the facts will emerge. There is a need to make sure there is access to professional counseling and independent financial planners that can be trusted. Honoring those who died and providing the proper support and sympathies to the beneficiarieies is overiding and "accepted business practices" and "stock prices" should not come into play. 

  3. Philip J. McGee
    Philip J. McGee says:

    First off, let me admit my dislike and distrust of virtually all major corporations.  That said I don’t get why this practice of hiding in the small print weeds makes it OK to continue to reap income from a policy after the death of the insured just because it’s done to everyone.  Also, it doesn’t seem wrong to me to deposit a check, large or small, into the accounts of the survivors especially when that sum would be immediately insured by the FDIC.

    As to Cuomo, he’s running for Governor and basically doing what the insurance companies do; he’s taking care of himself and his goals.  Don’t we all and isn’t that the basis of trust…..that we all can be trusted to operate in our own self interest.  Frankly, I believe that a form of "enlightened self interest" is the only thing that might lead to the survival of our species.


  4. Charlie (Green)
    Charlie (Green) says:

    Au contraire, dear Howard!

    First of all, to get a really thorough sense of my view on this story, please look at the blogpost I wrote a bit later, at

    http://trustedadvisor.com/trustmatters/863/The-Insurance-Industry-Is-Getting-the-Shirley-Sherrod-Treatment .

    Yes, I really think this is a hugely distorted story.  And it continues even yesterday, when Bloomberg released yet another ‘expose,’ with the headline "Veterans Agency Made Secret Deal with Prudential." (Hint: go try and figure out what the ‘secret deal’ was, and whether it stops you yawning).

    The after-shocks were nearly as great as a month earlier, with permutations on the scandalous cabal.  All over the bulletin boards was shocked outrage, with way more than the occasional claims that people should be strung up, fired, sent to prison, and so forth.

    Now: to your question.  Let’s look at the article you referenced and see what all this sturm und drang hath produced. 

    –Remember: this is the result of huge posturing by the Secretary of Defense, NY AG Cuomo, Senator Schumer, John McCain, the various news networks: all in a rush to say how drastically things were going to change when they got their hands on these evil doers, by golly.

    –Remember: this is also after the few cases that have come to actual trial have been rejected out of hand, as completely lacking in evidence because Prudential’s plan was transparently clean; after the Wall Street Journal  (who apparently still believes in doing real reporting) found out that the woman who claimed she had been duped had in fact cashed about 25 checks of the type she claimed she didn’t understand over a period of a few years and had about cleaned out her account. (See WSJ, "New Jersey Says Prudential Financial’s Payouts Are Acceptable")

    OK, to the videotape: what’s become of it?

    The article you note is a thorough summary, it seems to me.  Let me just quote the operative parts of the ‘actions to be taken’ clauses:

    – "VA will continue to provide a full explanation…[my emphasis]

    – "The department [VA] will provide better clarity of payment options by [asking] the beneficiary to choose one payment option, including a lump sum check, or a lump sum Alliance Account…that allows beneficiaries…to immediately write a check for the entire payment or any lesser amount….will also continue to offer the option for payment in 36 monthly installments.

    – "Prudential has agreed to implement these adjustments, and the department will continue to carefully monitor…"

    – "All SGLI/VGLI related information…will be modified to clearly and completely explain all aspects…and all options…

    -"VA will require Prudential to conduct a follow up contact with beneficiaries whose accounts remains open after six months…"

    – "VA will remove…the SGLI seal …replacing it with…Prudential…subtitle of “Office of Servicemembers’ Group Life Insurance”

    – "VA will identify additional opportunities to encourage beneficiaries…"

    – "VA will…improve support to …Personnel by helping to prepare additional training materials and instruction….

    That’s it.  That’s the result of State Attorneys General, US Senators, US Agency and Department heads, headlines of major news media–all howling for heads and firings–that’s it.

    I mean, look at these.  One I think is right, and solid, and speaks to Howard’s concern, and should have been done: the simple check after 6 months to make sure people knew what they were doing and continued to want what they chose.

    The rest?  This is bureaucratese from the corporate training department about the new brochures.

    But–I think that is exactly right.  The issue is so far from big that the bureaucrats probably had to dig deep even to come up with these paltry ‘fixes.’  The truth is:

    THERE…WAS…NO…BIG….ISSUE…HERE.  Have you heard of any victims?  Any?  I mean, besides the one the WSJ unmasked.  Go read the bulletin boards: the majority of vets who actually went through this are quite calm about it, and don’t see much amiss.

    The real issue here, IMHO, is not some horrific example of abused veterans.  Quite the opposite.  This has been an out-of-control attack by a very small group of reporters, and–most importantly–the tacit submission of all the rest of media. 

    I have yet to see one single journalistic entity call out Bloomberg for outrageously over-reaching on their headlines.  Where is the critical press?

    Sad to say, the simple fact is that an insurance company makes a helluva great villain these days.  Particularly if you conjure up a scenario that pits them against the grieving mothers of dead soldiers.  A Hollywood script writer would blush to hand this in, it’s yanks so many chains. 

    Unlike the Shirley Sherrod case–about whom the leftwing bloggers and media (rightfully!) got so exercised–there is dead silence on this one.  Sorry: an unpopular victim justifies the same means that would get a Fox Newser hung out to dry by most mainstream media, not to mention the blogosphere.

    I’ll say again: this story is not about a slightly better job of communications about death benefits–it’s about the vaporous quality of some reporting in the media we now have in 2010, and the stretched-thin fig leaf that any one passing the story along is doing any critical thinking.

    Journalists, bloggers, critics: where are you?  Jon Stewart, where are you?  Anyone remember what good reporting looked like?


  5. Howard Wolosky
    Howard Wolosky says:

    Thank you  for taking the time to  respond to my comments. I agree with you the reporting stinks and politicians and others are behaving very poorly. But with all that you say my comments still stand and I am happy changes are being made that will hopefully benefit the bereaved recipients of the insurance proceeds. Your view and mine of insurance companies are very different. I wrote about another program in which insurance companies particpated years ago at http://www.webcpa.com/news/13032-1.html

  6. Charlie (Green)
    Charlie (Green) says:

     Howard,  thank you for continuing a useful and serious dialogue. I do not want to defend the actions of any particular industry, and I suspect the insurance industry as a whole has more than its share of faults. The one you commented on is interesting indeed. I don’t like some of the practices in the healthcare insurance industry myself.

    On the other hand, we all need to guard against ad hominem attacks. If an industry behaves poorly in general, that still does not mean they behave poorly in every case.   In this case, I believe they have been unfairly maligned.

    I will simply refer readers to  one more link, an interesting document from the Department of Defense written in 1999 to announce the beginning of this program. It says everything I might say, but far more eloquently.



  7. Howard Wolosky
    Howard Wolosky says:


    I read the 1999 release you cited and the intention then seems right then. It’s the execution by ALL the interested parties that concerns me.  It would be interesting to see  if any E&Y advisors are still in the program and actively advising the beneficiaries as that 1999 release states. If they still are I would want to know exactly what type of advice they are giving and what level of certified financial planner is giving that advice.

    The reason I am continuing this dialogue is because like you I believe trust is important. It would be nice if a representative from Bloomberg adds a comment  here if they get wind of your original blog entry and the subsequent comments.





  8. Charlie (Green)
    Charlie (Green) says:

    Howard, I appreciate you continuing the dialogue, and for the same reason.

    I think your suggestion of inviting the Bloomberg reporter, David Evans, is an excellent one.  I’ll do it, and suggest you do the same; his email is [email protected]

    In addition to the Defense Department original announcement (previous comment),  here are a few more articles.

    First, from the Wall Street Journal, titled:

        New Jersey Says Prudential Financial’s Payouts Are Acceptable

    Second, also from the Wall Street Journal, where the reporter not only explores the legal standing of Prudential’s product, but casts doubt on reporter Evans’ star example in his original story:

        Courts Often Back Insurers’ Death-Benefit Practices

    Then there’s Jane Bryant Quinn, who explores the ups and down of Prudential’s product in sober terms (hint: it compares favorably with checking accounts).

    In my humble opinion, it all boils down to one thing: there is no case here.  And what’s scary is that a rogue piece of reporting like this, in this day and age, can provoke the firestorm of reaction that this one has.

    How does social trust get destroyed?  All it takes is one very wrong instigator, and a system that is willing to go from zero-to-60 in an instant by fanning that story uncritically. This isn’t just about unfairly maligning the people of Prudential, the VA and DoD; it’s about fostering cycnicism and destroying trust in our institutions.  We have little enough of that going around; we don’t need Bloomberg fanning the flames of cynicism and paranoia.








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