New York Intensifies Probe into Unpaid Life Insurance Death Benefits

Over the summer, regulators in New York stepped up investigations into the way big life insurance companies handle <"">unpaid death benefits. As part of its probe, the New York Attorney General’s office subpoenaed nine large insurance companies, including AXA SA, Genworth Financial Inc, Guardian Life Insurance Co of America, Manulife Financial Corp, Massachusetts Mutual Life Insurance Co, MetLife Inc, New York Life Insurance Co, Prudential Financial Inc, and TIAA-CREF.

Meanwhile, MetLife Inc. and Prudential Financial Inc. were among 172 insurance companies ordered by the New York Insurance Department to start using Social Security Administration data to determine when death payments are due.

New York is just one of several states, including Florida, California, and Connecticut, investigating the payment of unclaimed death benefits. The National Association of Insurance Commissioners, an alliance of the states’ top insurance officials, has also formed a task force to look into such practices. All of the investigations are focused on whether or not life insurance companies are doing enough to identify deceased insureds and make payments to beneficiaries. The investigations are also looking into whether insurance companies are turning over unclaimed policy proceeds to state unclaimed property funds in a timely manner when they are unable to locate a beneficiary.

According to a Bloomberg News report, insurers are generally required to pay claims after being notified of a policyholder’s death and receiving a valid death certificate. If they don’t receive notification, they usually are required to hold the funds until the insured would be about 100 years old, plus an additional three or five years, depending on the state, before turning the money over to the state as unclaimed property. But as we’ve reported previously, insurance companies can use a database prepared by the Social Security Administration called “Death Master,” which lists all Americans who die in order to make sure death benefits are paid to rightful beneficiaries. It is known that insurance companies use the database for other parts of their business, but they often ignore it when it comes to paying out claims.

The New York Attorney General’s probe, which was first reported by The Wall Street Journal in July, could turn out to be especially potent, as it was launched under the state’s Martin Act. That’s because under this state law, prosecutors don’t have to show intent to defraud, reliance and damages to prove fraud. Instead, they merely need to establish misrepresentation or omission of material fact in connection with the promotion, issuance, distribution, exchange, negotiation or purchase of securities.

In July, Bloomberg News also reported that the New York Insurance Department had sent a letter to 172 life insurance companies directing them to make death benefit payments based on the data from the “Death Master” database. The letter further directed the companies to report on the results for six months beginning this month. The department is also requiring the companies to report on policies they sell nationwide unless directed otherwise by another state regulator, Bloomberg said.

“The department is concerned that life insurers may not be adopting and implementing reasonable standards for investigating claims and locating beneficiaries,” the New York insurance regulator said in a statement announcing the action.

In addition to issuing the letter, the Insurance Department also announced it was taking steps to amend New York’s unfair claims practices regulations to require life insurers to perform regular “Death Master” cross-checks and to require that they request more detailed policyholder and beneficiary information to facilitate identifying deceased policyholders.

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