New York regulators turn up the heat on life insurance companies’ payments of death benefits

Kevin Lyons

The dead soon will begin to speak in New York, and it could mean millions of dollars for life insurance beneficiaries.

On July 5, the New York State Insurance Department ordered each of the 172 life insurance companies licensed to do business in the state to immediately locate beneficiaries of dead policyholders, find out when death benefits are due and make those payments. The life insurers are supposed to report their results beginning in September 2011.

New York Attorney General Eric Schneiderman is investigating at least nine life insurance companies.

Further, the Wall Street Journal reported New York Attorney General Eric Schneiderman has issued subpoenas to at least nine life insurers in a probe to examine whether the industry has adequately made good on policies for some of its dead customers.

New York life insurers can track the deaths of insured people through the U.S. Social Security Administration’s Death Master File. Insurance companies use this file to, among other things, fight fraud and verify dates of death before paying a policy benefit. But in a news release about its order to the life insurers, the New York Insurance Department says insurers boost profits by selectively reviewing the death file, withholding payouts, and continuing to pay themselves premiums even though the death file shows the insured person is dead.

This practice is not confined to New York. The National Association of Insurance Commissioners has formed a task force to investigate the possible failure of dozens of life insurers to pay death benefits. Industry leaders estimate life insurance companies nationwide owe beneficiaries more than $1 billion.

The insurance commissioners’ task force has held hearings in Florida and California, and is coordinating efforts with insurance commissioners in eight other states, although New York is not among them.

David Neustadt, a spokesman for the New York State Insurance Department, tells InsuranceQuotes.com that New York officials won’t know how many life insurance beneficiaries are owed money until the September reports start coming in.

In 2009, the latest information available, New Yorkers received about $30 billion from life insurers, including death benefits, according to the Life Insurance Council of New York, a trade association for the life insurance industry.

Diane Stuto, executive vice president of the council, says it member companies will cooperate with the New York State Department of Insurance’s inquiry. “We believe that a coordinated effort on this topic will collectively serve both insurers, as well as their customers,” Stuto says in a statement.

In what is called a “308 letter” sent to life insurance companies, the New York State Insurance Department says it is “investigating unfair claims and trade practices by authorized life insurers.” The department says it’s in the process of changing the state’s regulations regarding unfair claims practices to require life insurers to perform regular cross-checks against the federal Death Master File, and to mandate that life insurers seek more detailed information to help find beneficiaries and make payments to them.