Lincoln Financial Group agreed to a $1.5 million fine for unfair claims settlement practices and lost insurance claims stemming from the 2006 acquisition of a North Carolina insurer, New York regulators announced.
As part of the settlement, Lincoln Financial will develop policies and procedures to ensure that claims systems remain compatible with one another in the event of future acquisitions, New York regulators said.
“While we appreciate the steps that Lincoln has taken towards making beneficiaries whole, we stress the importance of keeping consumers from falling through the cracks during mergers and other types of business interruptions,” said New York Department of Financial Services Superintendent Maria T. Vullo.
“Consumers must be confident that their insurers are taking the necessary steps to maintain records, communicate claims processes, and make payments to beneficiaries,” she said in a news release.
All issues related to lost insurance claims have been resolved, a Lincoln spokesman said.
"Paying all legitimate claims is of utmost importance to us, and we have taken additional steps to ensure that similar issues will not arise in the future," said Michael Arcaro, vice president and head of corporate external communications, in an email.
Lincoln has paid $50.7 million to beneficiaries in connection with the late claim payments, the company said.
System Incompatibilities, Management Breakdowns
The case, in which Radnor, Pa.-based insurer acquired the Greensboro-based Jefferson-Pilot, became an example of the difficulties associated with the merger of the complex back office systems the administer life insurance claims.
The $7.5 billion merger created four separate claims processing systems, which did not update and track one another’s claims data due to platform incompatibilities.
But Lincoln also failed to adequately train staff and managers ignored warnings from employees, the government said.
Within a year of the merger, Lincoln began to lose track of the claims in New York from the Jefferson-Pilot policies and Lincoln began paying claims weeks, months or even years late, according to a government filing.
By September 2009, there were almost 4,000 pending life claims in Lincoln Financial’s claims systems, a 40 percent increase over the previous year, the government said.
But as late as 2014, an unclaimed property audit in some states where Lincoln conducted business found the company was still facing a pending claims backlog — the results of which were not shared until after Lincoln “self-reported” the issue in April 2015, the government said.
As part of the settlement, the company has agreed to deliver by March 30 a blueprint of how it plans to improve its policies and procedures.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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