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Insurer settles fraud charges

John Hancock Mutual Life Insurance Co. will pay $6-million in fines and millions more in customer refunds to settle Florida regulators' charges that it used deceptive sales practices and cheated customers.

The settlement is the second-biggest ever by an insurer in Florida, but it may not be the last.

Insurance Commissioner Bill Nelson said his office, along with state Attorney General Bob Butterworth, is investigating as many as 30 other insurance companies for using similar deceptive sales practices that were once rampant throughout the insurance industry.

"The message to other companies is this: We know they're out there," Nelson said.

Without admitting wrongdoing, Boston-based Hancock will make refunds to as many as 153,000 life insurance customers statewide in addition to paying the fine.

The company declined to comment beyond a brief statement that it was pleased that a settlement had been reached.

The deceptive practices that got Hancock into trouble primarily involve "churning," an illegal scheme in which policyholders _ usually elderly people _ are persuaded to buy new life insurance policies using the value of their old policies. Churning generates commissions for salespeople, but also saps the value out of current policies.

Insurance investigators also said Hancock salespeople used other deceptive practices, including misleading customers about premium costs and disguising life insurance policies as retirement plans.

The state's investigation of Hancock was prompted by complaints from customers, primarily from the Tampa Bay area, Sarasota, Orlando, Fort Lauderdale and Palm Beach County, Nelson said.

As part of the settlement, the insurance company and Nelson's office plan to contact all 153,000 customers who bought life insurance through Hancock between 1979 and 1996 to determine if they were cheated. (Hancock customers who have questions can call the Insurance Department at (800) 528-7094.)

Customers won't typically get cash refunds. Instead, they will have the option of getting cash increases in their policy values, receiving low-interest loans to pay their premiums or get other Hancock products. Customers who want cash refunds can seek them through an arbitration program.

If Hancock doesn't satisfy customers and state regulators, the Insurance Department will revoke its license to do business in Florida, Nelson said.

Charges of illegal sales practices are nothing new at Hancock or other big life insurers.

In June, Hancock agreed to pay at least $350-million to settle a class-action lawsuit by customers who claimed they were churned. Separately, the company agreed to pay $1-million in fines to New York regulators last year over similar charges.

In February, the nation's biggest life insurer, Prudential Insurance Co., agreed to pay the state $15-million _ the biggest fine ever against an insurer in Florida _ to settle churning charges. The Florida fine was on top of a $35-million settlement between Prudential and 30 other states over churning. Prudential also recently agreed to pay at least $410-million to settle a class-action suit filed by policyholders who claimed they were misled between 1982 and 1995.

Churning "is a common thread in these and the others we have in the queue," Nelson said. "Because they knew people were feeling pressure in the 1980s and wanted to put their money in other investments, these companies got aggressive in selling life insurance. The problem was that they concocted this scheme and stepped across the line and started selling by deception."

Insurance regulators won't discuss the other investigations. But state officials confirm that one involves Metropolitan Life Insurance Co., which in 1994 agreed to pay $4.2-million to settle state charges over misleading customers.