Information Security & US & Life & Love & Fashion & Hacking & Passion

Insurance agents who steal from clients can go undetected for years.

Kathy D'Alessandro outed her mother's crooked agent.

Complete Contents

Subscribe to Forbes

Jeanne and Anthony Trotta were in their 80s when they bought $150,000 worth of annuities in 1998 from Michael Minnehan, an insurance agent in their hometown of Milford, Mass. Minnehan told them the annuities would do better than a savings account. They might have, if the money hadn't been stolen.

A few years after the annuities were issued by Jackson National Life, the state Department of Insurance revoked Minnehan's insurance license following fraud allegations. He nonetheless continued to represent himself as an agent, the policies were surrendered and he pocketed a big chunk of the proceeds.

There are several ways for agents to cheat. In some cases they fail to pass along premiums to insurers. In others, they pilfer funds from the cash value of a policy or surrender a policy and keep the proceeds.

"Premium scams are a constant and widespread problem that likely will grow worse in this nightmarish economy," says James Quiggle of the Coalition Against Insurance Fraud. "Most [agents] are honest, but bilking vulnerable clients can mean easy money some just can't pass up."

Who eats the loss? That depends on the agent and the specifics of the crime. If the misbehavior is by a captive agent (one representing only one insurer), the insurer generally has to make victims whole. If it's by an independent agent (one, like the Trottas', selling policies from several insurers), clients can get stuck. A state guarantee fund will protect policyholders (up to certain limits) if their insurer goes under. Victims of fraud are left on the hook unless an insurer chooses to or is legally responsible for compensating them, or if the agent is able to pay restitution.

Six years after the Trottas bought their annuities, Anthony died. Jeanne was told by Minnehan the funds from her husband's annuity would transfer to hers. In 2006 she decided to surrender her annuity and tried to contact Minnehan.

She received a letter signed by his son that said Minnehan was ill with cancer and his affairs on hold. "Please bear with the situation," the letter pleaded. Several apologetic letters followed, along with financial statements from a New Jersey agency to which the Trottas' account supposedly had transferred. The Trottas' daughter, Kathy Jeanne D'Alessandro, reviewed statements her mother had received between 2004 and 2006. She realized they were frauds and Minnehan had never sold or transferred accounts from his agency to the New Jersey firm.

Life is one big negotiation--be it with your boss, spouse, customers or the used-car salesman.

Formidable deal makers like Warren Buffett, Bill Clinton and sports agent Scott Boras tend to be born, not made. But talk to negotiating pros from the worlds of government, finance and media, and they'll admit there is at least some science to this art--and there's no better time to master it than in a severe economic downtown.

Knowing, for instance, how to negotiate easier terms with suppliers can be the difference between conquest and carnage. "Vendors will be more lenient when it comes to negotiating financing options if they can lock you into a long-term contract," notes Gregg Bedol, business consultant with Red Zone Consulting in Atlanta. In this environment, Bedol recommends angling for friendlier financing on high-volume items like paper, ink and toner.

Winning every point in a negotiation is rarely an option, of course, but if you keep a few principles in mind, you can tilt things in your favor--whether you're signing a peace treaty or re-jiggering contracts.

KANSAS CITY, Mo.

Sprint Nextel Corp. watched another 1.3 million wireless subscribers head for its competitors during the third quarter, leading the company to post a loss that sent its stock skidding Friday.

Dan Hesse, the Overland Park, Kan.-based company's chief executive, told analysts that Sprint Nextel plans to work harder to attract new customers during the upcoming holiday season but acknowledged "we have yet to turn the corner."

"We made good progress on our operational priorities in the third quarter and resolved some key issues," he said. "Still, subscriber losses are too high."

The nation's third-largest wireless provider said it lost $326 million, or 11 cents per share, for the three months ending Sept. 30. It had earned $64 million, or 2 cents per share, in the same period a year ago.

Excluding one-time items, Sprint Nextel said it would have broken even during the quarter. On that basis, analysts surveyed by Thomson Reuters expected a profit of 3 cents per share.

Sprint Nextel's revenue fell 12 percent to $8.81 billion. Analysts expected $8.85 billion.

The company's shares lost 31 cents, or 8 percent, to close Friday at $3.37.

Since its 2005 acquisition of Nextel Communications Inc., the company has struggled with technical problems, unfocused marketing and difficulties integrating operations. Despite heavy investments to correct those problems, Hesse said the company still suffers from poor perceptions in the market.

Competing devices, such as Apple Inc.'s iPhone being sold through AT&T Inc., haven't helped, although Sprint has fought back with the Samsung Instinct and other comparable smart phones.

Sprint Nextel's wireless business reported a 13 percent decline in revenue to $7.5 billion as its subscriber base fell by 1.3 million. That included 1.1 million valuable "postpaid" customers who have contracts. That was worse than in the second quarter, when Sprint Nextel lost 901,000 subscribers, including 776,000 postpaid customers.

Postpaid churn, or the percentage of customers canceling service each month, was 2.1 percent, up from 2 percent in the previous quarter but below the 2.3 percent rate a year ago.

Hesse said the company would focus on slowing the losses of postpaid customers in the fourth quarter and expected the churn rate to be similar to the third quarter.

"Stabilizing revenue will be a focus area of ours going forward," he said.

JP Morgan analyst Mike McCormack said in a research note Friday that Sprint's "subscriber trends and guidance ... do not signal near-term improvement" and said he would continue to warn investors away from the stock, which has lost more than 70 percent of its value this year.

Also Friday, Sprint Nextel said it had changed the terms of its credit agreement, reducing the amount it can borrow to $4.5 billion from $6 billion but increasing the allowed debt ratio to 4.25 times earnings before taxes and other adjustments, up from 3.5 under the previous deal.

The company said it will pay higher interest under the new agreement and cannot pay cash dividends unless certain conditions are met. The company doesn't currently pay dividends to common shareholders.

Sprint also said it repaid $1 billion of the outstanding loan under the amended credit agreement.

Stifel Nicolaus analyst Christopher King said the debt moves likely would be viewed positively because they give Sprint Nextel "ample flexibility through the maturity of the agreement in 2010."

Sprint Nextel sits behind AT&T and Verizon Wireless in third place with 50.5 million customers. It fell further behind in the third quarter as AT&T and Verizon Wireless added 2 million and 1.5 million subscribers, respectively. Both said most of their new customers defected from other carriers.

Sprint Nextel said last week it was planning to hold on to its Nextel-branded network, which operates on a separate technology and has been responsible for a good portion of the subscriber losses. The move was seen as an indication that the faltering economy and tough credit environment made it impossible to sell the network at a reasonable price.