By Cyril Tuohy
Settlements between state regulators and the insurance industry are calling into question whether life insurers are doing enough to make sure they pay unclaimed death benefits and whether they follow the “best practice” doctrines corporations so often preach.
Wrapping up a lengthy investigation into unclaimed benefits, Benjamin M. Lawsky, superintendent of the New York State Department of Financial Services (DFS), said that insurers should have used more up-to-date databases to cross-check life insurance policies, annuity contracts and retained asset accounts with insurers’ internal files.
“Best practices should have required that insurers utilizing the Social Security Administration Death Master File or a database that is at least as comprehensive, to determine if any death benefit payments were due a as a result of unreported claims,” Lawsky said in a letter.
New York investigators found that while many insurance companies received a list of deaths from the Social Security Administration, insurance carriers never bothered to confirm whether the policyholder had, in fact, died.
If a family member did not know there was a life insurance policy, or if the family forgot to file a claim with the carrier, the policy went unpaid. As a result, thousands of families did not receive benefits to which they were entitled.
The American Council of Life Insurers (ACLI), in a statement on the unclaimed life insurance concerning New York policyholders, said life insurers “adhere to the letter and spirit of all laws and regulations pertaining to unclaimed life insurance benefits.”
Unclaimed life insurance benefits represent a “very small percentage of total claims paid,” the ACLI said in a statement posted on its website.
In New York, life insurers have made more than $812 million in payments to 113,559 beneficiaries in the wake of the investigation which was launched two years ago. Total payments made by insures directly to beneficiaries and to all states on behalf of beneficiaries amount to $1.15 billion, the DFS said.
Among the more notable payments made this year on policies or contracts resulting in the DFS investigation is a $406,598 payment to a Montauk, N.Y., beneficiary on an individual life insurance policy where the insured died in 2003, and $99,931 to a Bayside, N.Y., beneficiary on an individual annuity contract where the insured died in 2008.
New York investigators have been looking at the practice of insurers since 2011 at least, and insurers report that they have cross-checked about 90 million policy records against Social Security’s Death Master File.
The July announcement by Lawsky and the DFS follows the June settlement between California State Controller John Chiang and 11 insurance companies to restore unpaid benefits to Golden State beneficiaries in violation of unclaimed property laws.
The 11 companies cited in the June announcement included Genworth, The Hartford, ING, Midland National, New York Life, Northwest Mutual, Pacific Life, Symetra, TIAA-CREF, Transamerica, and Western & Southern.
They joined the settlement after AIG, Forethought, John Hancock, Lincoln National, MetLife, Nationwide and Prudential, all of which had previously settled with California authorities. Settlements with the 18 companies are estimated at $266.7 million belonging to California beneficiaries, according to Chiang’s office.
"People purchase life insurance policies for a reason: they want to make sure their loved ones are taken care of after they are gone, and it is deplorable that these companies refuse to pay beneficiaries by pretending they don't know the policy holder has died,” California State Controller John Chiang said in a statement.
California has sued two other companies, American National Insurance and Kemper, for failing to turn over documents.
Kemper is the parent company of Mutual Savings and Life Insurance Co., Reliable Life Insurance Co., Reserve National Insurance Co., Union National Insurance Co., and United Insurance Company of America.
Chiang has been auditing the practices of insurance companies since 2008, when his office discovered insurers were not paying death benefits to beneficiaries, despite having access to federal records that proved the policyholder had died.
On May 17, the Minnesota Department of Commerce announced fines worth $150,000 against Lincoln National and Northwestern Mutual in connection with automatically enrolling consumers into retained asset accounts.
Consumers were enrolled without being given the option – “sufficient disclosure” – about whether they wanted life insurance proceeds placed in such accounts as opposed to a lump sum cash payment upon the death of the policyholder.
“These settlements correct the improper practice of enrolling life insurance beneficiaries into so-called retained asset accounts without sufficient disclosures and giving beneficiaries options they have come to expect on the passing of a family member,” Commissioner Mike Rothman said in a statement on the department’s website.
The fines came two days after Rothman announced a $14 million settlement with Prudential following an investigation into the practice of not paying benefits to policyholders on the grounds that the beneficiary could not be found.
“Today, the Department of Commerce and Prudential agreed on how the company should put in place the safeguards to ensure the life insurance funds reach their rightful owner,” Rothman said.
Prudential denied any wrongdoing. “There’s no wrongdoing here,” said Bob DeFillippo, a spokesman for Prudential, quoted in the Minneapolis Star Tribune.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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