MetLife: Deceptive Sales Tactics
August 1993, Florida cracked down on Met Life, who allegedly led customers to believe that they were contributing to a retirement savings account when, in actuality, they were merely making premium payments on lfie insurance policies.
The intent was clean enough at the onset: it's not atypical for a life insurance policy to be sold as an "investment" in that it pays an annual endowment once it is funded. However when an individual chances employers, the policy has a small surrender value and cannot be moved in the same way as a "real" retirement instrument.
The main problem is that the product was being sold as a "retirement savings policy" and was interpreted (with some help from the company) as being analogous to retirement savings accounts (IRA/401K) - the customers had no indication they were buying an insurance company, and certainly didn't understand what would occur if they did not pay the policy through to maturity.
In the end Met Life paid $20 million in fines and was compelled to refund $76 million in premiums in the state of Florida. Several mid-level executives were demoted or dismissed, the stock price took a hit, and the company's credit rating suffered. The company also took a hit in sales of all products, as companies switched their benefit plans away from the company.
The individual executive (Rick Urso) was not sole to blame: the company's business practices favored "hard selling," put emphasis on results, and did not see fit to pay attention to good performance. Sales training encouraged employees to push the product as a retirement vehicle and downplay the insurance aspect.
Outside the firm, the hard-sell tactic and emphasis of insurance as investment are common practice - so in a sense, the company was acting in a customary and usual fashion within its industry. There is also a general indifference to ethics, in that insurance products do not have the potential to do physical harm to consumers, the way some manufactured ones do.
One ethical dilemma: where does the buck stop? In this instance,. MetLife punished a lot of mid-level executives, but the highest levels of management did not accept any blame for the actions of their subordinates (by contrast, the CEO of a Japanese company is held accountable for the least of his employees).
Another ethical dilemma is "puffing," which is generally considered to be the "mild" exaggeration of benefits and understatement of drawbacks that is commonly done in selling and advertising. Where does one draw the line between mere "puffing" and outright deception?
The company handled the crisis in a "classic mode" - which means that a company accused of unethical behavior is to deny everything until the evidence becomes overwhelming. This can often hide problems that will fester and the consequences will be greater than if they had gotten ahead of the ball.
Lessons Learned
Primarily, be proactive. A problem, if ignored, will fester rather than disappear. Their failure to address the problem in Florida cost them nearly $100 million in that state - but the fact that they ignored it until it became a public issue caused other states and clients to react, and the company is estimated to have paid $1.7 billion to settle those lawsuits.
Unusually good performance merits attention. While the increased revenue is good news, it's also a sign that something is being done improperly.
Beware strong sales incentives. Because the company paid a very high commission on the sale of these products, the front-line salesmen were even more aggressive than usual.
Size matters. If a problem can be discovered and repaired when it is still small-scale (in a single state, a limited number of affected persons), it is less sensational than a national problem with a huge dollar figure.
Sometimes, a trashed reputation can be restored quickly. In the case of MetLife, a new CEO came aboard and took a number of aggressive steps to address corporate ethics. Consumer faith in the company's reputation rebounded rather quickly.