Prudential, 7 States Settle Death Master File Probe

Prudential Insurance Co. has entered into a $17 million settlement with seven states to help conclude an investigation into how the company uses the Social Security Administration's Death Master File to find life insurance policyholders who have died.

The settlement is the latest chapter in the company's effort to show regulators that it is working to implement systems designed to improve how it uses the Death Master File. Last month, the company settled with about 20 states and agreed to apply new standards to how it uses the file for policies dating back to 1992 (Best's News Service, Jan. 16, 2012).

This new settlement, which was reached with insurance departments in seven states, will require the company to apply new standards to policies going forward. The states that have signed on include California, Florida, Illinois, New Hampshire, North Dakota, Pennsylvania and New Jersey.

For the agreement to become effective, a total of at least 20 states need to sign All states have until March 31 to sign the agreement to become eligible to receive the distribution of the settlement payment.

Under the latest settlement, Prudential will phase in enhanced search practices over a three-year period, including the use of expanded matching criteria to identify deceased policyholders, more frequent matching against the Social Security Death Master File and the adoption of a prescribed methodology for locating beneficiaries.

If beneficiaries cannot be located, Prudential must turn the proceeds owed to beneficiaries over to the states as required by state unclaimed property laws.

The settlement also involves The Prudential Insurance Company of America, Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey, Prudential Retirement Insurance and Annuity Company and Prudential Annuities Life Assurance Corporation.

The settlement does not require Prudential Financial to admit wrongdoing.

"Our company remains committed to paying the claims of our customers," Prudential said in a statement. "As the first financial services company to reach agreement on the new standards developed by a task force established by the National Association of Insurance Commissioners, Prudential is pleased to work with our regulators to develop and implement best practices for our industry."

Insurance regulators have been investigating why life insurers allegedly use the Death Master File to cut off annuity payments once a contract holder dies, but aren't using the same information to determine if any death benefit payments are due under life insurance policies, annuity contracts, or retained asset accounts. To date, 35 states have coordinated with the National Association of Insurance Commissioners on investigations into whether industrywide practices have resulted in insurers knowing about policyholders' deaths while still continuing to draw-down premium costs from their accounts until the cash reserves were diminished entirely.

Regulators have estimated that as a result of those allegedly improper payment practices, the combined damages across the affected states may exceed $1 billion (Best's News Service, May 24, 2011).

(By Jeff Jeffrey, Washington Correspondent: [email protected])