State regulators join forces to probe life insurance companies’ death benefit payments
State insurance regulators have banded together to coordinate their investigations into claim settlement practices of life insurance companies.
Representatives of insurance departments in 10 states — California, Florida, Illinois, Iowa, Louisiana, New Hampshire, New Jersey, North Dakota, Pennsylvania and West Virginia — now are members of a special task force looking into the matter. The task force was formed through the National Association of Insurance Commissioners.
The task force is examining the possible failure by several major life insurance companies to pay death benefits to policy beneficiaries. The alleged practices include use of the Social Security Administration’s “Death Master File” database by insurers for stopping payments under annuity contracts, but failing to use the same information for payment of claims on life insurance policies.
Formation of the task force follows the announcement in April 2011 of a more than $20 million settlement between the State of California and life insurer John Hancock over questionable practices regarding life insurance benefits. California and at least 35 other states are looking into the death benefit practices of life insurers.
The California State Controller’s Office cited this example in its investigation:
In February 1963, John Hancock issued a policy to a man who died in April 1999. For the seven years following his death, the company continued to collect premium payments by depleting the policy’s cash reserves until it was canceled in January 2009. More than 11 years after the insured man’s death, John Hancock still had not paid the beneficiaries or sent the money to the Controller’s Office for safekeeping.
John Hancock has said the California settlement will prompt the company to reform its practices.