9. Torchmark

9. Torchmark

CEO: Mark S. McAndrew
2007 compensation $4.7 million
HQ: McKinney, Texas
Profits: $527.5 million (2007)
Assets: $15.2 billion

Founded, by its own admission, as little more than a scam, Torchmark has preyed upon low-income Southerners for over 100 years. Torchmark is the holding company for a variety of subsidiaries offering low cost burial insurance, cancer insurance, life insurance, and similar policies. The company has come under fire for a variety of transgressions, including charging minority policyholders more than whites.
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According to its former CEO, Torchmark’s very origins are as a scam. Founded in 1990, the group’s purpose was to funnel money to its founders, according to former CEO Frank Samford. Then known as the Heralds of Liberty, it initially registered itself as a fraternal organization to circumvent Alabama’s insurance laws. It was reorganized as a stock company in 1929 and absorbed several other insurance companies over the course of the century before adopting the name Torchmark for the holding company in 1982

Since then, Torchmark and its various subsidiaries have preyed upon low-income Americans all over the South. The various schemes and tactics it has engaged in, including race-based underwriting, refusing insurance to non-English speakers, and deliberate overcharging of premiums, have prompted frequent lawsuits from regulators and policyholders alike. Now Torchmark plans to expand into more states.

In the 1990s, Torchmark subsidiary Liberty National Insurance was forced to pay several millions of dollars in litigation alleging fraud in selling cancer insurance policies. The company had marketed the policies in the 1980s promising lifetime benefits, yet changed the policies without telling their customers.

Torchmark subsidiaries Globe Life Accident Insurance and United American Insurance also came under fire for their marketing of individual health insurance policies. Some of the tactics that were highlighted included selling replacement policies that did not actually replace all of a person’s coverage. Company agents would convince policyholders that their current coverage would be discontinued at age 65, even when it was guaranteed for life, and then would offer new policies that were not worth as much. Another tactic involved offering “low cost” policies at rates that quickly shot up. In one such case in 1989, a Greenville, Mississippi, man bought a policy with an $86 a month “teaser rate.” Torchmark did not disclose that the rate would immediately go up. Within two years, the rate had more than doubled.

For years Torchmark and its affiliates have been involved in litigation concerning race-based pricing, particularly over “burial policies.” In the mid-1980s, half of all Alabamans who died had a burial policy from Torchmark. These burial policies were sold at a higher price to black policyholders. In 2000, a Florida court ordered the company to stop collecting premiums on the old burial policies because black policyholders has been charged more than white policyholders. Alabama regulator followed with an investigation. In 2006, Torchmark subsidiary Liberty National Life Insurance paid $6 million to resolve a 2,000 member class action lawsuit. According to the allegations, Liberty National agents would market these policies with premiums of less than $1 to attract low-income policyholders. However, black policyholders ended up paying 36 percent more than white policyholders.

In 2003, Torchmark affiliate United American Insurance settled charges that it had defrauded senior citizens in the sale of Medicare policies. A two-year investigation in Minnesota concluded the company had misled hundreds of people into purchasing supplemental Medicare insurance policies. According to the report, United American aggressively pressured hundreds of seniors into buying insurance that was more expensive and less comprehensive than the insurance they already had, which was a violation of state law. Internal documents showed that company agents were encouraged to act as if they were representing federal agencies or senior service centers. United American used a subsidiary, Consumer Support Services, which sent mass mailing to elderly citizens signed from the “Medicare Supplement Division.” Agents would then set up meetings to offer information packets, which in reality were home-sales opportunities. The fraud was reported by United American’s own employees. The company also deliberately delayed premium refunds and lied to authorities about its reserves. The Minnesota Commerce Department Commissioner said of the case, “This is not a case of rogue agents. These are not technical violations. This is irresponsible corporate culture at work.” A subsequent report from the state Office of the Legislative Auditor criticized the settlement because it had allowed United American several improper concessions. Among these were a confidentiality provision that kept the deal secret, an agreement not to report the company to the National Association of Insurance Commissioners (NAIC), and an agreement to characterize the company’s payment as a “fee reimbursement,” not a penalty or fine. It was as least the third time United American had been found to have broken Minnesota insurance laws. At the time, ten states had issued at least 26 enforcement actions against the company.

Even Torchmark’s own employees are not immune from the company’s desire to put profits over people. In 1998, Liberty National incurred a multimillion dollar verdict for age discrimination claims put forward by its employees. Evidence presented at the trial highlighted one particularly aggressive manager, Andy King. Ironically, in 2006, Torchmark CEO Mark McAndrew brought in Andy King to shake up Liberty National’s employees. Newly installed as President and Chief Marketing Officer of Liberty National, King would oversee what McAndrew described as a move from “socialistic” compensation to a “capitalistic” approach. McAndrew went on, “There is no doubt moving Andy out there we will see an improvement in the recruiting and new agent hiring. As far as these people that are at extremely low production level, this has been a long term problem. It is something that has gone on for year, so it’s not anything new. Some of those are veteran agents. Most of those would be more veteran agents. It has been accepted for a number of years, and it is something we’re changing. So it’s really not a new problem.”

Torchmark got a taste of its own medicine in 2003 when Waddell and Reed, a unit that Torchmark itself had spun off in 1998, conspired to switch policyholders from United Investors Life, another Torchmark subsidiary, to rival Nationwide. When United Investors sued, Waddell and Reed filed a civil racketeering claim against Torchmark accusing its former parent of scheming to continue its hold over Waddell after it was spun off. Torchmark eventually prevailed.