Sales Pressure at Aflac Led to Account Fabrications and Policies Sold to Customers Without Consent, Agents Claim

“We’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado,” thunders Blake, played by Alec Baldwin in the David Mamet movie “Glengarry Glen Ross.” “Second prize is a set of steak knives. Third prize is you’re fired. You get the picture?”

Constant pressure to meet goals is nothing new in sales, and it can breed desperation. We saw it at Wells Fargo, where line-level staff resorted to issuing fake accounts without customer authorization or consent. And sales personnel at supplemental insurance company Aflac, according to documents filed in federal court cases, signed people up to policies without their knowledge, illegally bundled policies, falsified applications and records, and transferred commissions away from agents who wrote legitimate business.

These allegations come from an exhibit in a derivative shareholder lawsuit filed by three former Aflac sales agents in federal court in New York, which the plaintiffs say represent material information that should have been disclosed to investors. Allegations of harms to workers also show up in a draft class-action complaint filed as part of two other federal lawsuits between Aflac and nine former sales agents. The plaintiffs claim that commission transfers prevented sales associates from meeting the lofty financial rewards promised them by Aflac recruiters.

Along with the named plaintiffs, The Intercept interviewed 18 current and former Aflac workers from 13 different states, along with a former employee at Aflac headquarters in Columbus, Georgia, all of whom requested anonymity for fear of reprisal from Aflac. Dozens of other agents communicated with The Intercept via email. These individuals described similar practices enumerated in the allegations.

The practices were often directed by state, regional, and district managers to make quotas and win internal sales contests, according to lawsuit allegations and interviews with current and former staff. They led to sales associates losing commissions on business they sold, as well as customers paying for insurance they didn’t want. The manipulations may also have impacted key sales metrics watched by financial analysts evaluating the company, according to allegations The Intercept reported on earlier this month.

“It happened in every state I was in,” said one agent who worked in sales and managerial positions with Aflac for over a decade in three states in the South and Midwest. “It was extremely discouraging to hear about continual contest manipulation, forging signatures, doing anything to hit contest goal numbers.”

Because the bulk of the conduct was performed by independent contractors, it’s difficult to establish Aflac’s culpability — another advantage of maintaining a sales staff not legally considered employees. But in 2012, Aflac paid a $1.6 million penalty to three states – Missouri, Minnesota, and Idaho – over a variety of market conduct issues involving underwriting and marketing, including areas like “overselling/suitability” and “producer bonuses, incentives, contests, prizes, and awards” which mirror some of the allegations. At the same time, Missouri fined three Aflac insurance agents for “falsifying information on consumers’ insurance applications and creating bogus policies,” which bear additional similarities.

“It’s the same stuff we allege and more,” said Dimitry Joffe, co-counsel for the plaintiffs. “They are on the record saying our allegations are false, yet here is the 2012 document with their signature on it.”

After the 2012 settlement, Aflac, which neither admitted nor denied guilt, had to submit compliance reports to regulators for three years. The plaintiffs claim that sales practices like gaming contests and writing false policies never stopped. “Upon information and belief, Aflac is not in compliance with the 2012 RSA,” the plaintiffs claim in their amended shareholder derivative complaint, filed on Wednesday, referring to the regulatory settlement agreement. “Further upon information and belief, the three state parties to the RSA have opened another market examination of Aflac in 2017, which is ongoing.” The Intercept asked Aflac for the reports but did not receive them. The Intercept also asked the three states whether the regulatory investigation had been reopened, as alleged by the plaintiffs. Missouri’s Department of Insurance would not confirm or deny whether it had; Idaho and Minnesota declined to comment.

The headquarters of Aflac Inc. stands in Columbus, Ga., on Wednesday, Jan. 28, 2009.

Aflac’s field force of roughly 75,000 sales agents, virtually all of whom are independent contractors, sell supplemental policies, which sit on top of traditional health insurance. But while sales associates get the largest commission share from writing a policy, district sales coordinators, regional sales coordinators, and market directors – the next three positions up in the hierarchy – all take a piece. Even other Aflac personnel, like the state trainer and “broker development coordinator,” get a cut.

As in most sales professions, district and regional coordinators must hit a sales quota. Also labeled independent contractors, they can get additional bonuses for winning a contest called FAME, which stands for the Founders Award for Management Excellence. Hitting three key metrics earns district and regional coordinators a FAME victory. Contest winners get trips to locations like Las Vegas, Cabo san Lucas, and the Dominican Republic. Sales associates can win contests as well, from trips to cash prizes or luxury goods like suits or watches.

With the carrots came sticks. Failure to reach quotas or make FAME can get a district or regional coordinator demoted, former and current sales agents explained.

To do well in the contest, however, agents can sell policies that quickly lapse. For instance, according to interviews with numerous sales personnel and the former employee, associates can buy policies for themselves and their families, let them lapse, and keep the contest credit. That credit goes toward district and regional coordinators’ bonuses and FAME awards as well. “It was all about playing the FAME game,” said a former regional coordinator with 15 years of experience with Aflac.

There’s supposed to be a fail-safe in the form of the “no-pay” rule, which stipulates that associates with a certain number of policies that miss the first payment – because the insured change their minds or fail to pay the premium – get disqualified from contests. Plus the commission, which is advanced to the agent, must be paid back to Aflac. This is all explained in a document on the Aflac website.

However, as long as the first payment gets made, the no-pay rule is not effective. “A policy calculating as not paid will change to paid when the full modal premium is applied to the policy,” the document explains; “modal premium” refers to the installment payment. So associates writing policies on themselves or families could pay the first premium and then cancel the policy, to earn contest credit. “That happened everywhere,” said one former associate.

Because FAME metrics include success by new associates, managers have an incentive to spread business around, transferring it away from the sales agent who wrote it. Aflac coordinators at the regional level and above can set up “sit codes” to cut anyone authorized to sell Aflac policies in on a sale.

“The widespread use of ‘sit codes’ by the regional sales coordinators and market directors to split the commission credits and reassign them at will without the associates’ knowledge and consent have resulted in our clients and similarly situated associates being cheated out of commission they would have otherwise been entitled to,” according to the December 10, 2016 Dispute Notice sent to Aflac top management, and included as an exhibit in the derivative suit. The notice cites one associate, Debbie Cort, who should have received around 35-40 percent commissions on her accounts; after splitting the business, her average commission was closer to 5 percent.

Former and current sales agents in 13 states discussed these practices with The Intercept, complaining of having to put a sale in the name of people they never met, or finding out after submitting the business that a new agent got credit for it. “They actually wrote a lot of premium into my name when I got my contract so a [district sales coordinator] could make quota,” said one sales associate in the Midwest. “I got commission, but I wasn’t there for the enrollment, nor did I have anything to do with the business.”

Another sales agent forwarded an email to The Intercept, which shows a regional coordinator offering managers a $250 bonus for attaching a new recruit to any last-minute accounts so he could get a “fast start,” one requirement for FAME.

A fast start

Several representatives told of a regular practice where state or regional managers would get their wives a writing number for Aflac and transfer business to them through sit codes, so the spouses could qualify for trips and contests. “People who don’t even know the name of accounts, where they are located, what they do for business, what the Aflac products are or do, are being paid commissions as associates,” said Martin Conroy, lead plaintiff in the federal lawsuits.  

A search of the public database of state insurance licensees in New York finds several agents with Aflac licenses with the same last name and same home address. They did not respond to a request for an explanation, but the arrangements are consistent with a pattern described by the plaintiffs to funnel production credit to the spouses of sales managers.

Use of sit codes also fed recruiting, because new associate production factored into the bonus, and new recruits with warm networks represented new accounts that could become another source of commission splits. Manipulation of sit codes was part of the 2017 derivative shareholder suit filed against Aflac. As of 2018, district coordinator bonuses no longer include new associate production, though milestones new associates need to hit are still part of the equation.

Former district managers described how sales associates became inured to losing their own business. “One girl said to me, I have $10,000 [in production], where do you want me to put it?” said one former district sales coordinator. “I said, who wrote the business? She said she did, but her last manager told them to hold the business so they could move it around to get FAME.”

If Aflac sales personnel were merely gaming the system to win contests, the only people harmed would be agents who lost commissions in the exchange. But the constant pressure to perform also could harm customers, say the former sales associate plaintiffs.

For example, the December 2016 Dispute Notice, attached to an active derivative shareholders lawsuit, refers to associates selling a “mommy package,” which tied a stand-alone maternity policy with a policy covering hospital visits. It quotes a communication from a regional coordinator about how to market these packages in schools and “maximize your opportunity” to sell policies. But New York insurance law, for example, states that policies sold separately cannot be marketed as a bundle; that would comprise an unlawful inducement.

Louis Varela, a former sales associate from New York City and one of the plaintiffs in the federal lawsuits, heard about the mommy packages when he was sent to the Chappaqua, New York school district in fall 2015 to talk to teachers during their open enrollment period. This is typically an opportunity for Aflac associates to write additional business, or update information on policies. Teachers complained to Varela that they were paying for bundled packages they didn’t want. “Associates were telling teachers they had to buy the mommy package,” Varela said. After informing the teachers that they didn’t need to buy the whole bundle, Varela cancelled several of these policies, but got chewed out by his district coordinator. “I said the teachers don’t want the policies,” he explained. “He said, don’t cancel them.”

Mommy package

Varela supplied documents showing that he was at Chappaqua’s Horace Greeley High School on October 28, 2015. The Intercept reviewed signed and dated cancellation notices from employees at the high school.

Varela told another story about an enrollment meeting at a bakery with numerous Spanish-language speakers. He said that his fellow agent told the speakers, “the Obamacare law says that everyone needed insurance, and if you don’t have insurance you can be deported.” Aside from the lie that not having insurance is a deportable offense, Aflac supplemental policies would not actually count as eligible health insurance coverage under the Affordable Care Act. But the threat, he said, led to a significant amount of business at the bakery.

The agent alleged to have spread that information did not respond to questioning from The Intercept.

The conversion from individual to group policies, covered in the previous installment of this series, can also shortchange policyholders. Aflac’s individual cancer policies traditionally had an optional “building benefit,” which would get paid out in the event of a cancer diagnosis. This Aflac policy explanation explains the building benefit. But Aflac Group plans don’t contain this benefit, so in the conversion, Aflac saves thousands of dollars in potential payouts per enrollee. Veterans who sold the individual accounts, and enjoy the renewal income from them, are often barred from speaking to policyholders while a broker converts the business.

The Dispute Notice includes another allegation dubbed “express enrollment fraud.” Aflac sales associates would allegedly visit worksites and hand out paper forms, asking employees of the businesses what additional policies they might like to purchase. Instead of returning to enroll those employees, sales associates would use an enrollment platform called SmartApp Next Generation (SNG) to input employees’ personal information, forge signatures in the sign-up screen, and enroll them in the policies, the Dispute Notice alleges.

Aflac’s payroll-deducted policies can often only be cancelled during open enrollment, per IRS guidelines, which means that policyholders would face a year of payroll deductions before being able to get out of payment. Most states do have a “free-look” period for insurance policies allowing someone to cancel within 10-30 days. But workers could overlook the small slice taken from their paycheck, littered as it is with a litany of deductions, and pay for the unwanted policy indefinitely. (Direct deposit only makes workers that much less likely to spot it.)

“The SNG system was set up for fraud,” said one former regional coordinator in the Midwest. “I caught a district coordinator on deadline night, writing applications on a computer and signing them. I came in and confronted her: ‘What are you doing?’ She said everybody does this.” The man quit his managerial position after that and returned to being a sales agent; he claims that the woman he caught was promoted into his position, then fired for falsifying applications, and then re-hired within a couple years. “It tells me what kind of company they are,” he said. The Intercept was unable to verify the identity of the woman; Aflac declined to comment. “It tells me what kind of company they are,” he said.

Several agents unaffiliated with the lawsuits told stories of Aflac sales personnel showing up outside large employers like prisons or police precincts, getting workers to sign paperwork as they entered the building. They would then enroll those workers on the SNG system without their consent, by applying the signatures to the new policies. Or they would enroll customers in multiple policies when they only requested one. These stories match the express enrollment fraud allegations in the Dispute Notice. (Aflac began to use a new enrollment platform called Everwell in 2015, though it’s still a digitally generated system like SNG.)

Complaints from the websites Consumer Affairs and Ripoff Report buttress the claims. “Aflac insurance representative came to my workplace December 1, 2016 and sold me insurance I didn’t need,” wrote one unidentified customer. “And thought they were only going to take out $65 a month…lately they [sic] been taking out over $100 per week.” The customer claimed to make $1,600 in payments for the unwanted insurance. Here’s another Ripoff Report complaint:

Aflac representatives use high pressure, buy it right now tactics when signing up employees at a company. Feeling reassured I could “cancel anytime” I signed up for all 7 policies offered. I came into my office to pick up my paycheck, and kept saying I needed to talk it over with my husband who wasn’t with me. The agent pressured me saying that was the only day they’d be there, I can cancel unwanted policies later, and with the pre tax deductions, my take home pay actually wouldn’t change but fourteen dollars. I found out I couldn’t cancel anything until open enrollment, my take home pay was actually almost a hundred dollars a week less.

One couple who attended separate enrollment sessions while working at a museum a few years back told The Intercept that the Aflac agent told them they could only get details of the policies if they purchased one. “I said, you’re telling me I can’t know what I’m buying until after you have my money?” asked Erin SanClementi, one of the two museum employees. “He said yes.”

It’s impossible to know how commonplace writing policies without consent was. Aflac refused to provide statistics about how many of these policies were issued; spokesman Jon Sullivan would only refer to a board of directors report from last September that the company claims clears them of wrongdoing. Sullivan said in a one-line response to detailed questions, “The report posted on our website speaks for itself.”

Literally nothing in that report has anything to do with the allegations in this story. The report refers obliquely to the plaintiffs’ allegations of “a wide range of alleged wrongs” around underwriting and bundling and sit codes, but never addresses them specifically. The only comment in the ballpark of the claims states that they “describe episodic issues, some of which occurred several years ago.”

Aflac does have policies in place to single out fraud and hold agents responsible. Before the 2012 tri-state settlement on market conduct issues, Aflac had a Special Investigations Unit monitoring these issues. After that, they also established an internal affairs department called Aflac Trust, which issues guidelines and conducts investigations. And Aflac had to report violations to Missouri, Idaho, and Minnesota for three years.

But current and former employees asserted that at the ground level, they were constantly pressured to produce, with colleagues writing unrequested policies or manipulating contest numbers. “In your head you’re questioning the morality of it,” said one midwestern sales rep, “but you’re being told no big deal, do what you gotta do.” Another district coordinator said that, two weeks after a training session about market conduct violations triggered by the 2012 settlement, she was told by her regional manager to have agents buy policies on themselves to hit FAME. “That’s what we were told not to do two weeks prior!” she said.

Agents said they complained incessantly to Aflac Trust and officials at corporate headquarters about higher-ups manipulating sit codes and siphoning commissions, to no avail. But the Aflac Trust guidelines, and an annual “Acting with Integrity” course sales associates must take every year, gives Aflac plausible deniability. They can blame a sales force of independent contractors rather than the culture fostered by the pressure of quotas and bonuses, and a system that offers rewards for simple accounting maneuvers. “Aflac created this game, they created this structure that gave leniency to different state operations to conduct their business as they see fit,” said another current sales representative.

A former employee from corporate headquarters in Columbus, Georgia alleged that Aflac turned a blind eye to actions by its independent contractors, like using fake addresses in enrollments, manipulating contests by writing policies that later lapse, or using sit codes to reward spouses. The compliance department was seeded with former salespeople put into positions of authority. “They would say you’re here to help the company make money,” said a former employee. “The motto was to ‘get to yes.’”

The former employee explained that Aflac conducts “agent activity review committees” for sales personnel suspected of fraud. “The committee always listed how much money the agent made for the company every year. If they made a lot of money, they don’t get terminated.”

Top photo: The Aflac duck visits the floor of the New York Stock Exchange after Aflac executives rang the closing bell during the afternoon of Dec. 4, 2015 in New York City.