Foster’s Daily Democrat, Dover, N.H., Jeremiah Turner column [Foster’s Daily Democrat, Dover, N.H.]

Oct. 28--Last week the New Hampshire Insurance Department announced that AIG had reached a settlement with NH and six other states. It agreed to do a better job of trying to find beneficiaries of life insurance policies it had issued.

AIG is also known as American International Group, and is one of the world's biggest insurance companies. It will pay $11 million to the states that sued it, and make changes in its business practices.

The AIG agreement follows similar deals with Prudential and Metlife earlier this year, with $17 million and $40 million in agreed to payments. Another deal is in the making with Nationwide, according to the Insurance Department.

These are some of the biggest companies out there that write life insurance policies. What a relief to know our loved ones won't be left destitute if we have an insurance policy and die and they didn't know we meant for them get something.

What's wrong with this picture?

It harkens back to ethics and business and why the insurance industry is considered sleazy. It's not the only industry we don't trust these days, either, for similar reasons.

Here's what was happening.

Consumers were taking out the kinds of policies that double as retirement plans and are known by various names such as "whole life" plans. At some point such plans made regular investment payments to the policy holder, known as annuities. When that person's name showed up as having expired on the Social Security Administration's Death Master File, AIG would stop making annuity payments.

Fair enough. But it did not take the next step, which should have been to pay the policyholder's named beneficiary the amount remaining in the plan when the policyholder died.

AIG and the other companies just quietly held on to the money unless a beneficiary contacted them.

"It was an industrywide problem and in many cases the beneficiaries were unaware ... what companies are being asked to do is just good business practice," said Keith Nyhan, director of consumer services at the NH Insurance Department.

Now, the companies will "regularly check" the Death Master File and take "reasonable steps" to pay insurance benefits to named beneficiaries. Good practice indeed, sounds more like honesty to me.

Insurance is an odd business. It deals with intangibles and plays to our fears.

What if a hurricane fells a tree that crushes the car? What will it cost to replace our house if fire strikes? What will my spouse and the kids do if I keel over from a heart attack?

When we take out an insurance policy we agree to pay for piece of mind. In return, we trust that the insurance company will honor the terms if something happens.

Did we really need to have states strong-arm these companies to get them to honor their commitments to policyholders?

Turns out they were operating under the don't ask-don't tell policy. We all know what this is, as it's become common, especially in the cable and wireless business.

This is when your cable TV bill suddenly increases and you finally reach a live person by phone and are told they have changed the rates. You complain and they agree to give you a special reduced rate.

"Would I have gotten this deal if I had not complained?," you ask them.

The answer invariably is "no."

Don't ask, don't tell.

It's one thing to be shafted like this by a telecommunications provider. It's a much bigger violation when we're dealing with a firm we depend on to take care of our property and loved ones when something goes wrong.

The scariest part is this only pertains to the states that were party to the legal action. This included New Hampshire, Texas, California, Florida, Illinois, North Dakota and Pennsylvania.

It also only involves the aforementioned big companies.

So what about beneficiaries of policies in other states and those who have policies with all the other insurance companies writing policies out there? They'll just have to rely on good faith.

Nyhan said the hope is the companies involved will decide it's good business practice to regularly use the Death Master List and other databases to find people who are owed money. And will do so nationwide, not just in the states such as New Hampshire where they got their hands caught in the ash urn.

Now in this state at least people who pay for life insurance can rest a bit more comfortably.

Under the terms of the settlement, any sums owed where beneficiaries can't be found will be turned over to the state's Abandoned Property Unit. This is the place that periodically releases a list of people who have funds coming to them. Eventually, if no one comes forward this goes into state coffers, which is some comfort that it at least will benefit the public.

Nyhan said anyone who thinks they may be one of these life insurance beneficiaries can contact his office at 1-800-852-3416, or go on the department website at www.nh.gov/insurance.

The new due diligence by insurance firms should be evident immediately, he said.

There are many cases where the less-government-is-better crowd can make a case. When it comes to government oversight of the insurance industry, let the buyer beware doesn't work very well since they're often dead.

Jeremiah Turner can be reached at [email protected].

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