When insurers use death notices to stop retirement checks but ignore them to pay death benefits
We know that the failure to search for beneficiaries even though the company has access to death information is a pervasive industry practice.
Wake up and good morning. Are the nation's biggest insurance companies violating laws by using a Social Security death database to cut off retirement-income checks of annuity owners -- action that benefits the insurance companies -- but not using the same database to determine if policyholders have died and death benefits should be paid?
Let’s call it selective sight for profit.
That’s the crux of a months-long, multistate investigation that resulted in Thursday’s announcement by Florida insurance regulators that an agreement was reached with Prudential Financial. A multistate settlement on death benefits includes Prudential’s pledge to look more closely for instances where dead policyholders' benefits were never claimed. State insurance regulators hope this will serve as a template for the rest of the industry. Read more in this Wall Street Journal story. And here's the news release (with a link to the full settlement agreement) from the Florida Office of Insurance Regulation.
kevinmccartyinsurance_commissionerfloridaap.jpgThe agreement calls on Prudential to overhaul its computer system to make better use of death databases to ensure that policies don't go unpaid for years. Prudential, based in Newark, N.J., agreed to pay $17 million for costs of the examination, and monitoring and compliance expenses. "The new claim settlement standards will supplement Prudential's extensive prior efforts to identify deceased insureds and to locate beneficiaries," the company said in a statement.
Extensive prior efforts? If Prudential's prior efforts were so extensive, what triggered this multistate probe and settlement? As seems so often the case in these regulatory wrist slappings, the tone and message of what the regulators hype and the affected corporations minimize are miles apart.
As reported by Reuters, the agreement becomes effective after 20 states sign it. Currently Florida and six other states have signed. Regulators say tens of millions of dollars in policy benefits went unclaimed, in some cases for decades. Under the deal, if beneficiaries cannot be located, Prudential must turn the proceeds owed to beneficiaries over to the states as required by state unclaimed property laws.
John Hancock Life Insurance Co. reached a similar agreement with Florida regulators in May 2011 in which the insurer said the agreement standards "are well beyond those required by law or regulation."
As was reported in an earlier Venture blog posting on this issue, it's the little guy who's most vulnerable. "Under the industry's current system of waiting for a claim to be filed before a payout is triggered, tens of thousands of customers -- likely families with smaller policies who don't have lawyers or financial advisers keeping track of money matters -- could be losing out on proceeds, according to industry consultants, executives and regulators."
-- Robert Trigaux, Business Columnist, Tampa Bay Times