Life Insurance Giants Fined for Claim Payouts

Thursday, November 15th, 2012

By Jennifer Bjorhus, Star Tribune (Minneapolis)
McClatchy-Tribune Information Services

Aug. 17, 2012–State insurance regulators have sanctioned four of the largest life insurance companies that operate in Minnesota for allegedly steering death-benefit recipients to keep the money in special accounts the companies run, instead of taking lump sum payouts.
The companies — Prudential, John Hancock, MetLife and ING — were each fined $200,000 and ordered to change their claims forms in Minnesota and re-establish cash lump sum payouts as the default option, according to the consent orders the state Department of Commerce released Thursday. The pacts don’t provide direct compensation for individual consumers.
The department estimates that thousands of Minnesotans were affected by confusing paperwork and said the practices have gone on for years and, in the case of some companies, decades. The companies agreed to the penalties without admitting wrongdoing.
“Some folks don’t even realize that they could have had a lump sum payment,” Commerce Commissioner Mike Rothman said in an interview. “It’s certainly wrong. It’s inappropriate.”
The insurance company accounts aren’t FDIC insured like a bank account, and function like a money market account. The company gives beneficiaries access to the death benefit money and pays interest on it — a Prudential spokesman said it pays around 0.5 percent. Meanwhile, the companies invest the money and pocket the profits as a bank would.
The four insurers together have about 680,000 such death benefit accounts nationally holding about $19 billion, according to the Minnesota Department of Commerce. The department did not provide numbers for Minnesota, but said it’s likely that thousands of people in the state have been affected.
State investigators discovered problematic claims forms during a probe that started about 10 months ago. The forms were allegedly hard to understand and resulted in many people unwittingly enrolling in an option to hold benefits in a “retained asset account” run by the insurance company, the agency said.
The investigation is part of a broader state look at how life insurance companies handle unclaimed death benefits when beneficiaries aren’t located. Rothman said that investigation is ongoing.
Separately, MetLife Inc. and Prudential Financial Inc. were sued last year in Minnesota for allegedly failing to pay death benefits on hundreds of Minnesotans’ policies because nobody claimed them. The plaintiff is a privately held investigative company out of Michigan.

 

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