Wow, how’s that for an inflammatory headline! 

And no, I’m not just going for shock value. The thought has been in my mind recently after receiving a lengthy listing from the Illinois Insurance Department on independent agents in our state being fined, having their licenses pulled, or being denied licenses. And not for stuff like being out of trust, either. We’re talking for the most part about people with preexisting criminal records — ranging from child support deadbeats, DUI slugs, drug dealers, child pornography convicts, even a murderer. 

Here’s a sampling: 

Jerome F. Johnson, Chicago – Application for insurance producer license denied, effective May 17, 2010. Mr. Johnson’s application for a license to sell life, accident and health insurance was denied as a result of an investigation which revealed that the Applicant was convicted of felony Murder on January 27, 1971, and failed to provide documentation with his application effective June 9, 2010.

Timothy A. Rasey, Hoffman Estates – Application for insurance producer license denied. Mr. Rasey’s application for a license to sell life, accident, and health insurance was denied as a result of an investigation which revealed that the Applicant was convicted of felony Child Pornography on December 17, 1998.

Michael J. Smith, Chicago — Mr. Smith was licensed to sell life, accident, and health insurance. His license was revoked as a result of an investigation which revealed that he was convicted of six counts of felony Unlawful Distribution of a Controlled Substance on January 29, 2003. – Insurance producer license revoked effective May 28, 2010.

Of course, everyone has the right to go straight and make an honest living after serving time, but then there are the others who are still at it:

Jason A. McKay, Bolingbrook – Mr. McKay was licensed to sell life, accident, and health insurance since January 18, 2008. Mr. McKay’s license was revoked as a result of an investigation which revealed that he: created a fraudulent group in order to obtain cheaper premiums; offered to rebate premiums for three consumers; improperly withheld premiums; and submitted insurance documents to an insurer that contained non-genuine signatures. The revocation also includes $25,000 civil penalty and $23,616 in restitution. - Insurance producer license revoked effective May 27, 2010.

I admit there’s  probably something in Lake Michigan water that predisposes so many of its residents to the left-hand path. Besides the tiresome example of Al Capone (who’s been dead for more than 60 years but seems to generate just as much press posthumously as when he was alive), we have the dubious distinction of having roughly 20 percent of our governors indicted on felony charges. (Late, great Chicago journalist Mike Royko once suggested that the Illinois state motto should be, “Will the defendant please rise.”) 

But with the economy showing signs of slipping backward instead of improving, I’m certain that the Land o’ Lincoln doesn’t have the market cornered on corruption. Independent agents handle money, sometimes lots of it, and in the immortal words of prolific ’30s bank robber Willie Sutton, when asked why he robbed banks:” Because that’s where the money is.”

A career as an independent insurance agent is attractive to the legit — and with its entrepreneurial flavor and access to the pocketbooks of both corporate and private America, probably equally attractive to the felonious.

In a blog post here earlier this year, we reported figures from the Coalition Against Insurance Fraud (CAIF) showing that state fraud bureaus were not only seeing an increase in insurance fraud, but in fraud being perpetrated by agents. Just as there are hinky accountants, doctors and lawyers, a job as an insurance agent is sure to attract the unscrupulous. And with no end of tough economic times in sight, you can be sure you’ll be hearing more about this in the future.

The Coalition Against Insurance Fraud‘s recently released interim survey of state insurance fraud bureaus includes some predictable stuff, and a couple of surprises. For instance, it’s no surprise that the bureaus reported that all types of insurance fraud were up, and that their operating budgets were down.

What did surprise me, though, was that agent fraud is the third most prevalent form of fraud being reported by the bureaus, right behind bogus health insurance and drug diversion:

Suspect cases involving insurance agents increased substantially year-to-date in 2009. A total of 69% of respondents said agent cases were up slightly higher or much higher so far in 2009, while a quarter reported no change. Only one bureau said the number of cases involving agents had fallen in 2009.

We contacted CAIF’s Dennis Jay, who minced no words:

Let me be clear upfront: The vast majority of agents are honest and committed to their clients’ best interests. But a small and disturbingly growing minority are painting the entire profession as a bunch of crooks. .

Survey results and CAIF’s own database of agent fraud cases culled from news stories and other sources shows a steady increase in agent cases since 2007 through 2009. “This suggests agent fraud cases may be rising, but also may reflect increased crackdowns by insurers, fraud bureaus, state AGs and other fraud fighters to better detect agent scams,” Jay said. “Or it may reflect both trends. At bottom, agent scams are a significant consumer problem, and constant headache for insurers and state regulators alike.”

Stealing premiums without buying the promised coverage is one of the most common forms of agent fraud. “It’s easy to commit, and can leave clients dangerously uncovered when they have a claim,” Jay said. “Some agents are selling bogus health coverage, which is spreading rapidly around the U.S. We’re also seeing producers selling overpriced life products clients may not need, want or understand. Seniors especially are frequent victims of annuities scams. ”

Crooked agents also are selling “shady investments in non-insurance areas far out of their insurance expertise, and often without a license,” Jay said. “Smaller businesses in high-risk operations also have been sold fake liability coverage or had premiums stolen. They’re vulnerable because liability premiums tend to be high and coverage isn’t always easy to find.”

Agent fraud is the Mr. Hyde opposite of the Dr. Jekyll of agent-as-expert-consultant, with wise guys using their industry knowledge to exploit the average Joe, Jay said. “Dishonest producers coldly exploit their position of trust. They’re authorities in a highly complex, technical arena that most people don’t easily understand. So average, trusting consumers tend to believe whatever agents tell them. This is especially true of seniors, who’ve built up larger portfolios that crooked agents try to drain. The profession’s leadership and carriers also keep urging the public that agents are professionals that people can trust. So when people believe the marketing messages, trust their agent and then get swindled, that leaves a bad taste in the public’s mouth.”

To avoid public backlash, Jay recommended that the industry get behind some serious housecleaning.

The agency community’s associations across all lines should be challenged to aggressively help weed out the bad actors before state legislators take punitive actions and the agency profession’s public image among customers plummets lower. If people think they can’t trust producers, their first temptation might be to try direct writers. There’s so much at stake competitively that the entire agency community, especially the leadership, should aggressively clean out its closet.