On a conference call announcing earnings for the fourth quarter of 2017 on Thursday, Aflac CEO Dan Amos defended his company against a series of allegations reported by The Intercept in a trio of federal lawsuits against the company’s sales, recruiting, and financial disclosure practices.
“When the false allegations were made recently by a very small group of independent contractors in the United States, we responded in a very transparent manner that represents our way of doing business,” said Amos, unprompted, at the beginning of the earnings call. He cited a 73-page board of directors report that responds to a portion of the allegations, labeling them “without merit.”
Amos also said a second report was due at the end of February. He didn’t say whether that would be conducted by internal audit, compliance teams, or an independent third party.
Aflac stands accused, in complaints and exhibits filed in three federal lawsuits, of making misleading promises of lucrative rewards in recruiting sales associates, misclassifying tens of thousands of sales associates as independent contractors, signing up customers to policies without their authorization or consent, transferring commissions from those who sell policies to managers, manipulating key operational metrics to demonstrate company growth to investors, and retaliating against whistleblowers.
Several stock analysts peppered Amos and his management colleagues about the allegations. Nigel Dally of Morgan Stanley asked whether the situation has had an impact on sales, to which Amos replied it was too early to tell. “We will be able to handle any of the issues that were brought forth and resolved in our favor,” Amos said.
Tom Gallagher of Evercore ISI asked if Aflac changed any of its business practices as a result of the board of directors’ review of the allegations. Amos said that the first report “spoke for itself,” a line echoed by Aflac spokesperson Jon Sullivan in responses to The Intercept. Amos added, “We’re always looking to see if there’s a better way to regulate things. … We’re trying to make sure we run this company in the most ethical manner possible.”
Amos cited an “Aflac Trust” hotline that associates with complaints can call directly, as well as a Special Investigations Unit to look into complaints. The plaintiffs in the federal lawsuits allege that complaints from sales agents were not addressed, and that the individuals who made the complaints faced retaliation, including demotion and the loss of accounts.
Other analysts seemed to question some of the operational sales metrics mentioned in the allegations. John Barnidge of Sandler O’Neill mentioned that the most recent average weekly producer metric, which the plaintiffs have alleged is manipulated by placing production credit in the names of associates who had nothing to do with selling policies, looked outsized. “It doesn’t seem like it was that high previously,” Barnidge said. Teresa White, president of Aflac U.S., pivoted to talk about productivity per worker. “Our focus has been on productivity, training … working with producers to become productive agents,” she said.
The plaintiffs have alleged that the typical entry-level Aflac sales associate working full-time lasts less than a year and makes under $10,000 in sales commissions.
White also repeatedly highlighted new annualized premium sales, which the plaintiffs have also said can be gamed by converting older individual accounts into group accounts and booking them as new sales. When Suneet Kamath of Citi asked what percentage of sales represent conversions that aren’t actually new customers, White said, “It’s a very small amount, about 1 percent.”
This contradicts what the plaintiffs, as well as numerous current and former sales agents, have told The Intercept about individual-to-group conversions. The derivative shareholder complaint filed last December states, “The individual-to-group conversion has become widespread in recent years, allowing Aflac to report ‘new’ business that is nothing more than the old business cannibalized by Aflac to the severe detriment of its Sales Associates, and in deceit of its shareholders.”
On Wednesday, the plaintiffs amended that derivative shareholder lawsuit, which was filed in U.S. District Court in the Southern District of New York. The amended complaint notes that Aflac’s board of directors report only covers a handful of its allegations. “In sum, the … report itself is false and misleading, just another element of the Defendants’ coverup,” the amended complaint states.
On Wednesday, President Donald Trump welcomed an Aflac employee into a White House meeting and received a pair of socks with the corporate mascot, a duck, plastered on them. Trump noted that his wife, Melania Trump, had a history with the company. “Your chairman I know very well and he’s done a fantastic job,” Trump said. “He actually a long time ago hired my wife to do a big commercial, an Aflac commercial, and think it was a successful commercial, too.”