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Monday, May 17, 2010

Areivim: Friends Don't Let Friends Purchase Snake Oil

Since the start of my blog, I have commented on the uses of tzedakah money and the advertising techniques. I have always stayed away from naming names as I operate my blog on the premise that it is a forum for intelligent people to discuss ideas, trends, and culture, not specific people, shuls, and schools. Until last week, I had never come out and named an organization by name (I once linked to the website of said organization with a small warning again co-mingling cash in gemachs and buying into programs that aren't fiscally sound).

Last week, I broke with my usual protocol when a very kind and, most importantly, qualified reader volunteered a Guest Post: AREIVIM and Why I Don’t Like It. I feel so strongly about the issue of not only having life insurance, but educating co-religionists regarding its importance and helping needy families purchase life insurance (rather than multi-thousand dollars apparel, wigs, furniture sets, and pricy sheva berachot for chatanim and kallot that have never paid an electric bill of their own), that I'm willing to go out on a limb here and name names. . . . .or shall I say, lack of names!

Rabbi Horowitz composed a letter to the one and only public name behind Areivim, Yoel Bochner. He asked a series of basic questions about the plan, and he received an answer the essentially reads like this: Trust Us. We are endorsed by Askanim and Rabbonim.

I felt perfectly comfortable publishing the guest post without contacting the organization because I am of the believe that anyone selling a financial product should have officers, audited financial statements, and a prospectus. The Areivim website doesn't list contacts and has the chutzpah to ask you to provide your contact information to them in order that they be able to contact you!

After Rabbi Horowitz received answers to direct questions posed to Avreivim, I believe that I have all the evidence I need to say: Friends Don't Let Friends Purchase Snake Oil. Whoever is behind this program (and we still haven't the foggiest idea, although the other Areivim website lists this as a project of Kupat HaIr) doesn't have the common courtesy to release their names (not in the letter to Rabbi Horowitz and not through their website) or post the names of those who are qualified to endorse such a plan (namely a team of actuaries, which Mr. Bochner claims are out there. . . . .now who are they?!?!?!?). Meanwhile, they are running a very slick advertising campaign through the internet, mailings, and local publications and I think that anyone who has turned their credit card number over should think twice and encourage

The lack of transparent finances and legalities is, of prime importance, but I want to point to three other areas of significant concern (I will underline in the reproduced letter below):

1. Mr. Bochner takes the time in his letter to essentially educate against life insurance, rather than use a valuable platform to educate about the importance of life insurance (although he does ask people buy life insurance). The main premise behind the study of economics is the concept of scarcity of resources. Rather than encouraging families to prioritize resources and mobilizing the community to prioritize our resources in helping needy families purchase real life insurance, he promotes his own program's affordability and essentially discourages the purchase of commercial insurance.

2. The organization reserves the right to decide you don't actually need the insurance and responsible people who purchase life insurance will not be eligible for payout from Areivim despite membership. This achieves the exact opposite of creating a situation of dignity, and will also practically ensure that only the most uninsurable folks buy into this plan.

3. The organization encourages widows to spend the money the "big expenses" of tuition and weddings, but allows a Rav to be the arbiter. The idea that a widow(er) should need to answer to a Rav regarding the money they rightfully receive from a "life insurance" plan (no matter how flawed) strikes me as CRUEL.

I am shaking as I write this and I will go so far as to say that the organization that I believe is behind this plan already deals with millions of dollars of tzedakah funds yearly and I think it high time that transparency be demanded. Additionally, it is time to start asking our community leaders to stop re-inventing the wheel and encourage a philosophy of sechel where precious communal money is at stake. This plan makes about as much sense as investing our life savings in becoming Amway salesperson. What news will we wake up to next, that we need a frummer version of penicillin? It is time to check the ego at the door and admit that we might be a brainy people, but Met Life and Northwestern Mutual have know-how.

In the meantime (I have to go to work), can my more connected readers who might get the time of day please contact endorsers and ask them to take a second look. Breaking news: The endorsements from a Rabbi at the OU, the Agudah, and the National Council of Young Israel are no longer appearing on the website. Can someone find out if they pulled their endorsement. And if so, encourage publication of such. OK, I have to run to work. Here is the letter:

MR. YOEL BOCHNER’S RESPONSE
Dear Rabbi Horowitz,

We are grateful for your interest and the insightful points you raise, and appreciate the opportunity to respond and dispel some of the misconceptions and confusion surrounding our work.

Your reputation as someone who works tirelessly for progress and change in our community, refusing to accept 'because that's the way it always done' as a reason for stagnation, makes us confident that, if you take the time to study our plan, you will share our vision.

In addition, your touching personal note about your own childhood underscores the importance of what we're doing: sparing other humiliation and inconvenience

It would be cynical and unfair to assume that KYA is 'just another' activist organization when, in a sense, we have entirely rewritten the way things are done.

Not content with mere figurehead rabbinic figures, the rabbanim affiliated with us are involved, investing time, energy and heart in this project, one which has become a priority to them.

The rabbanim in question are representative of all the various streams within yahadus hacharedis, chassidim, litvishe, Sephardim and Ashkenazim.

Please note that the rabbanim to not 'endorse' us, or promise to daven for people who help us- they are us! Every single rov is already a part of- or will be a part of- our work and they are the prime catalysts for our success.

In America, the names of Rav Mechel Steinmetz and Rav Benzion Strasser on signed on to the account, and we have hundreds of other rabbanim in communities across America.

You see, Rabbi Horowitz, the rabbanim are our greatest allies because they know better than anyone else just how broken the old system was, and how workable this one is.

They are the ones that were faced with the bitter daily task of hearing the tales of pain from new almanos, the accounts of orphans in a home bereft of a breadwinner.

There was a time before people grew numb, when it was still possible to appeal to the masses and hope to touch their hearts; unfortunately, as tragedy followed tragedy, people- even in a nation of rachmanim- grew a little less sensitive to the relentless onslaught of tzaros.

The 'keren' system, in which the rabbanim formed special accounts for each needy family, was no longer an effective way to galvanize the people and raise the necessary amounts of money.
Rabbi Horowitz, you- correctly- mention the humiliation of the young orphans that are fully aware of their new status as 'wards of state'.

Imagine the shame of young children who are forced to 'pose' for the pictures that will be emblazoned on the walls and shuls of their hometown? Is there anywhere to run from such pain?

We came into being due to original and creative thinking by the rabbanim and askanim involved in these wrenching situations. You, Rabbi Horowitz, raise valid points about how it ought to have been done, in an ideal world, but these dedicated individuals are working within the parameters of reality, well aware of the limitations of people.

You know the numbers- each head of family commits themselves to three dollars per orphan, in the sad scenario of a parent's death.

Three dollars per member – based on a group of 16,500 people in the group- per yassom equals fifty thousand dollars per child.

A lot of rules and regulations were put in place to assure that the system can work out.

The idea gathered steam, and in America- where, unfortunately, tragedy is no stranger- askanim wanted a similar program. The 'keren' system stopped working here as well, and the embarrassing newspaper campaigns, even those that attempt to maintain the anonymity of the recipient, often cause great collateral damage.

The lay leaders that created the American model felt that fifty thousand dollars per child was insufficient for this country, and changed the numbers- six dollars per child would equal one hundred thousand dollars per child. We were welcomed by the heads of virtually every single communal organization- Agudas Yisroel, Young Israel, Orthodox Union, Chabad and various other communities.

The terms and condition were drafted by a team of accountants and actuaries, working pro bono for a cause that was placed at the forefront of the communal agenda by rabbanim.

Rabbi Horowitz, before we delineate the details, allow us to respond to your overriding concern; why not get people to purchase conventional life insurance?

The question is a good one. Kol Yisroel Areivim is not an insurance policy and we encourage every person who can purchase a standard policy to do so. The more they invest, the more their families stand to receive in the event of tragedy, c'v.

Now, for the numbers. In order for a life insurance policy to really make a difference, it would need to provide a minimum $250,000.00 per child. This is based upon the need for $15,000.00 per year per child.

The maximum return on money, with no risk, is 2.5 per year, which means that the profit on $250,000.00 is $6,250.00 per year. The remainder of the money per child would need to come off the 'keren' for each of the ten years, and thus the 2.5 percent yield will decrease proportionately as well.

This option is an expensive one, and a great many frum families cannot afford the monthly payments in a budget weighed down by mortgage, food, tuition and car payments. Bear in mind that this type of policy is only for ten years and one would need to purchase it at a young age in order to get such a favorable rate.

As the age of a breadwinner increases, and health concerns arise, the price rises as well, and often those who need it most cannot afford it. In addition, so often the payout of several hundred thousand dollars is not nearly enough and then the families must resort to the benevolence of the community regardless.

As mentioned, Kol Yisroel Areivim fills a void not in theory- where everyone should have life insurance- but in practice, where many people do not. In fact, even if the deceased did have life insurance, but with a plan that gives less than one hundred thousand dollars per child, Kol Yisroel Areivim fills the gap.

The rabbanim and lay leaders at our head have drafted regulations that ensure that no individual has excessive power and to maintain accountability and fairness.

• The KYA Policy is open to all members of Klal Yisroel.

• All policies will be reviewed by a board of rabbanim and policy acceptance is contingent upon their approval.

• The rov of the shul where the deceased was a member, of a rov closely associated with the family, will oversee the transfer of funds and ensure that the needs of each individual child are met.

• The account is opened in the name of the surviving parents and the family rov, as well as a family guardian to ensure that the money is used or invested wisely.

• Kol Yisroel Areivim reserves the right to have applicants fill out a medical questionnaire that will determine eligibility. In the event that the questionnaire was filled out incorrectly, KYA reserves the right to terminate the agreement. Funds that were paid out must be refunded.

• Any issues that arise will be dealt with by the rabbinical board of KYA or its authorized arbitrator. Their decisions will be final.

• In the event of a member’s passing, the agreed-upon fees will be collected from the group's members. The funds will then be used to establish a trust for the children of the deceased. In the event that the group is complete ,with 16,500 members, the amount will be one hundred thousand dollars per child. If the group is incomplete, there will be a minimum payment of fifty thousand dollars per child

• The amount collected is $6.00 per orphan, with a maximum total of $288.00 per year.

• If the charge does not go through for a period of ninety days, membership will be terminated.


The money should ideally be allocated for major expenses, such as tuition or marriage, but the rov assigned to the family will be the ultimate arbiter.


Since this fund is meant as an opportunity give tzedaka, in a respectful fashion, to almanos and yesomim, no fund will be established for people that have life insurance in place, or a sufficient sum in cash/assets to render them ineligible of receiving communal assistance.


• Within the organization there is no single individual that has excessive control over the money.

• The office is run by five askanim that do the office and technical work,and each individual case is assigned one overseer from the central office. These people are efficient and knowledgeable and available to discuss any case or answer questions.

Obviously, there are others that wish to copy the success of our model, and it would serve the best interests of the klal if we could unite and join forces. For various reasons, this is not the case, however.

Our appeals are never based upon the drama of painting heartbreaking scenarios and thus using fear and guilt to convince the people. We much prefer to share the facts in an intelligent, clear fashion and respect the ability of people to make intelligent decisions.

Rabbi Horowitz, we are most grateful for your interest and for taking the time to study our plan and its benefits. Your willingness to ask hard questions is testimony to your concern for Klal Yisroel, and thus, it makes you a most fitting partner for our work. It is gratifying that there are people such as yourself that are realistic enough to recognize the potential problems, yet still hopeful enough to encourage positive change.

Respectfully,
Yoel Bochner

23 comments:

Anonymous said...

I've read what the Actuary wrote in the guest post, but there is one point that I might add in the favor of KYA. It is not a life insurance policy, it is a tzedaka campaign. If you don't qualify for tzedaka then it's a one way street (or should be). It is nothing more than a way to raise money without newspaper ads or letters in the mail.

If it's run that way, then the number of deaths may be sustainable. If the cohort is 80% donors and 20% tzedaka cases, you're only taking on a fifth of the mortality risk.

MoChassid said...

anomymous

two points.

Number one, the plan is completely opaque so we don't know whether the mix is 80/20 or 20/80.

Second, even if it's 80/20, the same organization could be raising money to create insurance pools and use the sponsor money to supplement those who cannot afford the premium.

DAG said...

Are the Askanim in the office paid? How many hours a week do they work?

Dave said...

You know, the criminal justice system is currently grinding through some very clear examples of why Rabbonim are not exactly the source of financial wisdom (*)...


(*) Dan l'kaf zechus. Otherwise I would have to assume they were knowing criminals instead of financial idiots.

Anonymous said...

Another sign that the Orthodox world is heading toward an economic abyss.

Anonymous said...

I am suspicious of the gratuitous flattery of Rabbi Horowitz by the letter writer. The schmaltz makes me skeptical in and of itself.

LifeAct said...

MoChassid-

God help us that these organizations should never even think of opening a real insurance business. The competition is fierce, the margins are slim, and the regulations are tight and abundant. It would mean Federal Kollel for the lot of them.

Zach Kessin said...

Someone should report these bozos to the NY State insurance commission before they walk off with a large amount of cash out of pure stupidity.

Oh wait, I did.

Commenter Abbi said...

My favorite line: "A lot of rules and regulations were put in place to assure that the system can work out."

I think that would go over really well at a Senate Finance Committee meeting, no?

Anonymous said...

There is an easy way to see who is behind this, see who owns the internet domain:


Domain ID:D155326607-LROR
Domain Name:KOLYISRAELAREIVIM.ORG
Created On:10-Feb-2009 20:28:25 UTC
Last Updated On:09-Mar-2010 16:29:26 UTC
Expiration Date:10-Feb-2011 20:28:25 UTC
Sponsoring Registrar:GoDaddy.com, Inc. (R91-LROR)
Status:CLIENT DELETE PROHIBITED
Status:CLIENT RENEW PROHIBITED
Status:CLIENT TRANSFER PROHIBITED
Status:CLIENT UPDATE PROHIBITED
Registrant ID:CR38270945
Registrant Name:Victor Brief
Registrant Street1:1303 53rd Street
Registrant Street2:PMB 258
Registrant Street3:
Registrant City:Brooklyn
Registrant State/Province:New York
Registrant Postal Code:11219
Registrant Country:US
Registrant Phone:+1.7184374372
Registrant Phone Ext.:
Registrant FAX:
Registrant FAX Ext.:
Registrant Email:
Admin ID:CR38270947
Admin Name:Victor Brief
Admin Street1:1303 53rd Street
Admin Street2:PMB 258
Admin Street3:
Admin City:Brooklyn
Admin State/Province:New York
Admin Postal Code:11219
Admin Country:US
Admin Phone:+1.7184374372
Admin Phone Ext.:
Admin FAX:
Admin FAX Ext.:
Admin Email:
Tech ID:CR38270946
Tech Name:Victor Brief
Tech Street1:1303 53rd Street
Tech Street2:PMB 258
Tech Street3:
Tech City:Brooklyn
Tech State/Province:New York
Tech Postal Code:11219
Tech Country:US
Tech Phone:+1.7184374372
Tech Phone Ext.:
Tech FAX:
Tech FAX Ext.:
Tech Email:

old frum actuary said...

I think the gig for these guys is up. With postings on Rabbi Horowitz's site, Vos iz Neis, this site and Hirhurim (and probably others) anyone with intelligence will know not to bother.

There are two organizations - Areivim and Kol Yisroel Areivim. I have no idea why two are needed, other than to assume that there is some money being made by the askanim who run them, who get to hire friends and family members as well.


As a tzedokoh organization it is not a terrible idea; get loads of people to agree to pay $28 any time someone dies. As long as someone is making sure that for each person who needs money (post-death) there are 4 people who simply sign up to give and not receive. Unfortunately, they are not watching that; not are they watching the age at issue or the number of kids enrolees have.

MoChassid said...

Life Act

I am not suggesting they open an insurance business. I am suggesting that instead of funding this scheme, efforts should be made to raise money that would go directly into supplementing people's ability to buy term life from real life insurance companies.

tesyaa said...

MoC: as I think another commenter has pointed out, there is probably plenty of money for term life, except for the few who don't qualify for a standard policy because of health issues. The fact is, the community chooses to spend money in different ways: on custom wigs, on custom furniture, on granite kitchens with triplicate appliances, and so on. Talk about needs vs. wants.

tesyaa said...

To be fair, I will qualify my last comment and say that most Americans are underinsured, and the frum community is probably not different than the rest of the country in that respect. However, only in the frum community would people raise "tzedaka" to pay for something that they can afford but would prefer not to spend money on.

Orthonomics said...

True that most Americans are probably underinsured. But I know of no other American demographic that averages 4.5 children, all of whom are expected to go to private school to say nothing camp, weddings, and dowries.

As a community, we really need to be insured, not buying Magic Beans a la Jack in the Beanstalk.

Anonymous said...

The scam might be based out of Brooklyn (based on the domain name info). This is not a surprise.

LifeAct said...

I posted this on RYH site. I wonder what the other LI professionals here think of my ideas:
_______________________

The commentors here have highlighted some of the most important problems with the plan, but I believe that if KYA wants to do right they could fix the problems. The important problems are (at least):

1) Anti-selection: KYA will naturally be composed of the worst possible risks, both in terms of death risk and payment default risk.

2) Compliance with State Laws: As an insurance product, KYA would have to be licensed in every state it operates. Licensure is an additional step above actually complying with reserve and capital requirements, disclosures, statement of AO, etc.

3) Mis-Pricing: The maximum premiums are woefully low compared to expected DB.

4) Fund Management: Lack of transparency is a red flag when money is involved. The askanim must publish their names and accounts, somehow, without jeopardizing the privacy of the beneficiaries.

5) Lack of Clear Standards: Distribution of funds phraseology contains ambiguous stipulations that can lead to abuse.

6) The Absence of the Names of Members of Program's Professional Teams.

If KYA would simply limit their reach a little bit, I believe that these issues could be surmounted. I am a life insurance actuary with significant experience in pricing, valuation, and compliance. I suggest the following:

A) Clean up the troubling payout clauses and rectify the fund management issues: It is outside my professional expertise to recommend HOW to fix this, but the existence of these problems is what prevents me from lending my credibility to the aspects of the program that I am qualified to advise on. I expect that this is why no professional is allowing his or her name to be disclosed.

B) Desist from calling this insurance: This can be achieved in a simple way. Instead of a group with Option 1 and Option 2, I recommend two separate groups - a paying group and a benefit eligible group. The benefit group would NOT give their credit card numbers and would NOT pay upon the death of a group member. The benefit group would have to meet qualification standards for receiving tzedaka (and requalify periodically).

The paying group would be made up of donors only. No qualification necessary, and the donations would be tax deductible if the organization meets 501(c)-3. The size of the donor group relative to the benefit group and the size of the donation per death would have to be carefully monitored and optimized. The size of the group and the size of each donation would determine the maximum donation per month, and this should be carefully matched to the expected mortality of the benefit group, based on GI (guaranteed issue) mortality to limit the effects of misrepresentation.

This would clear up any issues of compliance with isurance regulation, as the program would not be insurance. It would also have the benefit of NOT MISLEADING THE PUBLIC into thinking that they are buying insurance through KYA.

If KYA can take care of #1, I (and I am sure other professionals) would be glad to lend my services and credentials to creating a feasible long-term tzedaka raising program.

Bob Miller said...

What exactly is lacking in the normal ways of aiding the Jewish needy that we now have to risk money on an unproven concept executed by unproven (or at least unknown) operators?

We're the Chosen People and are known to be very wise. Entering this lottery as now organized is not wise.

LifeAct said...

Bob,

The sheer number of collections has made it difficult to raise money for each "keren". The idea of KYA that is appealing is that it could be an efficient, low cost per incident method of collecting funds. I personally would rather sign up to pay $28 of tzedaka per month so that the individual solicitations and melodramatic newspaper ads and flyers would stop and the needy would get what the klal gives these days.

Anonymous said...

In re Victor Brief, owner of the site:
He appears to be tech support for a bunch of
companies and tzedokos.

Bob Miller said...

LifeAct,

What you're really describing is the need for a properly managed Orthodox United Fund, with all necessary Rabbinic input and transparency. Such a fund would not include every cause that sends out flyers, only those judged most suitable. No matter what communities do, there will always be flyers for individual charities---it's a free country, as it should be.

Bob Miller said...

A new response was posted today as an article on Rabbi Horowitz' web site, but it leaves a whole lot unanswered.

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