Cuomo Probes Insurers' `Secret Profits' on Death Benefits of U.S. Soldiers
By Andrew Frye and David Evans -
bloomberg.com
New York Attorney General Andrew Cuomo began a fraud probe into the life insurance industry and subpoenaed MetLife Inc. and Prudential Financial Inc. for information about profits on death benefits retained from the families of deceased policyholders including military personnel.
“It is shocking and plain wrong for these multinational life insurance companies to pocket hundreds of millions in profits that really belong to those who have lost family members,” Cuomo said in a statement today. “The insurance industry appears to be hoarding millions that belong to military families whose loved ones have made the ultimate sacrifice.”
Cuomo’s investigation into what he called “secret profits” was prompted by Bloomberg Markets magazine report and joins reviews by the New York State Insurance Department and U.S. Department of Veterans Affairs. More than 100 carriers earn investment income on $28 billion owed to life insurance beneficiaries, the magazine reported. New York-based MetLife, the biggest U.S. life insurer, and No. 2 Prudential are among the firms that administer the so-called retained-asset accounts.
“It’s troubling that people are not getting an immediate payment and that the insurance companies at least seem to be making some effort to make money off this,” Matthew Gaul, deputy superintendent and head of the New York regulator’s life insurance division, said yesterday in an interview.
Interest Income
Cuomo’s subpoena demands information about the difference in interest income earned by the insurers and the rate paid to beneficiaries. His office is also seeking information about how survivors are told about the conditions of the accounts.
Insurance companies may be violating a federal bank law, Bloomberg Markets reported. A 1933 statute makes it a felony for any company to accept deposits without state or federal authorization. The insurer accounts aren’t guaranteed by the Federal Deposit Insurance Corp.
“We’re looking at the legality of this whole process,” Gaul said. “There’s a question of whether this is really a banking business.”
MetLife and Newark, New Jersey-based Prudential place death benefits in interest-bearing accounts and issue IOUs to survivors. Insurers market the accounts as a service to allow bereaved beneficiaries time to think about what they’ll do with the payout. Carriers make money by investing the funds in bonds and keeping the difference between returns and the interest they credit to the accounts.
‘Full Access’
“Beneficiaries have full access to the money in their retained asset accounts and can withdraw the full amount right away or at a later date,” the American Council of Life Insurers, the industry lobby headed by MetLife Chief Executive Officer Robert Henrikson, said in a statement. “Retained asset accounts provide a significant benefit to family members who are dealing with the emotional loss of a loved one.”
Prudential paid survivors like Cindy Lohman, the mother of a slain Army sergeant, 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings. Lohman told Bloomberg Markets that her IOUs were rejected twice by salespeople when she tried to use them to make retail purchases.
“The possibility that life insurance companies are profiting inappropriately from these service members’ sacrifice is completely unacceptable,” Mike Walcoff, acting undersecretary for the VA’s Veterans Benefit Administration, said yesterday in a statement that announced an investigation.
New Jersey
Thomas Considine, commissioner of the New Jersey Department of Banking & Insurance, said he instructed staff to question Prudential about Lohman’s rejected IOUs.
The New York regulator plans to issue a letter to insurers urging greater disclosure of the accounts’ terms and the absence of an FDIC backstop, Gaul said. The watchdog will then consider whether any rules would prohibit insurers from providing the accounts, Gaul said.
Pennsylvania Insurance Commissioner Joel Ario is considering a plan to require insurers to obtain the consent of beneficiaries before creating an account on their behalf. He said in an interview that his staff is studying the issue.
“Prudential and its Alliance Accounts are in compliance with all applicable laws and regulations,” Bob DeFillippo, a spokesman for Prudential, said yesterday. Christopher Breslin, a spokesman for MetLife, had no comment. MetLife’s Joseph Madden told the magazine that customers were happy with the accounts.
State Protection
Considine, of New Jersey, said his department has never received a complaint about retained accounts. State guarantee funds backstop insurers and provide account holders with protection against default by carriers, Considine said.
“They do bring a very, very real consumer benefit,” Considine, who was familiar with the accounts during his 17-year career at MetLife, said in an interview.
State regulators are supposed to back life policies by raising money from insurers that do business in their state. There are no public records showing how much companies are holding in the retained-asset accounts, Bloomberg Markets reported.
“It appears that the substantial interest earned on these accounts mostly benefit and enrich the insurers at the expense of the families to whom the money really belongs,” Cuomo said. “Beneficiaries are not adequately informed by the insurers of the details of these accounts including the fact that the insurers are making huge profits at the expense of the grieving family.”
To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; David Evans in Los Angeles at davidevans@bloomberg.net. |
