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States Investigating Life Insurance Companies

A number of states have begun to look into whether large life insurance companies are failing to ensure that they pay out on policies of deceased customers. So far, 34 states have reportedly signed on for the probe.

At issue is the status of possibly hundreds of millions of dollars, now held by the insurance companies, that could go to consumers and the cash-strapped state governments.

The Wall Street Journal reports the inquiry began with the efforts of an auditing firm, Verus Financial LLC, which began approaching states three years ago with the idea of identifying unclaimed life insurance policies that those states could seize as abandoned property.

California subpoenas MetLife

One of the states is California, whose insurance commissioner recently announced he is investigating MetLife’s practices regarding the payment of death benefits.

The Insurance giant has been subpoenaed as part of a joint investigation with the state comptroller, with a hearing set for May 23, 2011.

When a policyholder dies, the insurance company is required to pay the death benefit to the beneficiaries, or if they can’t be located, to the state’s unclaimed property program. Did that happen in every case? State officials are doubtful.

California officials are responding to preliminary findings from an audit the California Controller launched in 2008, indicating that for two decades, MetLife failed to pay life insurance policy benefits to named beneficiaries or the State even after learning that an insured had died.

Industrial policies

The state also has a special interest in what it calls the “huge number” of so-called Industrial Policies, valued at an estimated $1.2 billion, which MetLife sold in the 1940s and 1950s to modest income consumers. The payments, which were collected weekly, typically were higher than the final death benefit, the state says.

The California Controller’s unclaimed property audit indicates that MetLife did not take steps to determine whether policy owners of dormant accounts are still alive, and if not, pay the beneficiaries, or the State if they cannot be located.

Simultaneously, the preliminary findings show, when MetLife knew that an owner of an annuity contract – which generates income for the policy owner at the time the annuity matures – had died, or the annuity had matured, the company did not contact the policy holder or beneficiary, even though it subscribed to the “Death Master” database. Furthermore, MetLife allegedly continued making premium payments from the policy holder’s account until the cash reserves were used up, and then cancelled the contract.

Isolated or systematic?

California recently announced a landmark settlement with insurer John Hancock and has conducted a multi-year investigation aimed at determining whether the insurance industry was in compliance with state unclaimed property laws requiring them to transfer dormant property to the State for safekeeping when the rightful owners, or their heirs, cannot be located. The Commissioner and Controller said they believe that these practices are not isolated, but are systemic in the insurance industry.

“The thrust of this hearing is to determine whether MetLife, one of the largest life insurers and issuers of annuities in the United States, engaged in unfair practices regarding the payment of life insurance claims to beneficiaries,” Insurance Commissioner Dave Jones said. “California families buy insurance to provide for their retirement security and the financial security of their families when they die,” Controller Chiang said. “The benefits should be paid to the policy beneficiaries or to the State to return to the rightful owners.”

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Written by lordsinsurancelog

April 28, 2011 at 3:52 pm

Posted in Insurance News