Richard Shelby, ranking Republican on the Senate Banking Committee, requested the panel review insurers’ profits from the practice of retaining soldiers’ death benefits rather than making lump-sum payments to survivors.
“It is unclear whether service members and beneficiaries understand the full range of financial choices” offered by the Department of Veterans Affairs’ insurance program, Alabama’s Shelby wrote in a letter today to Christopher Dodd, the Connecticut Democrat who heads the Senate panel.
Shelby joins Representative Edolphus Towns, Democrat of New York, in pressing for congressional review of life insurers’ practices. Prudential Financial Inc., which provides coverage through the Veterans Affairs’ program, and MetLife Inc. have been under fire since Bloomberg Markets magazine reported last month that the industry holds about $28 billion in so-called retained-asset accounts.
“The Banking Committee should hold a hearing to examine these reports and determine if any unfair practices exist,” Shelby wrote. “I have already instructed my staff to begin investigating this issue in preparation for a hearing.”
Dodd’s office said today that the senator will coordinate efforts with Shelby to address the issue.
Life insurers settle death claims by issuing IOUs and accounts that include “checkbooks” allowing beneficiaries to get funds. Beneficiaries accumulate interest while insurers hold the funds and accrue investment income. Prudential, the second- largest U.S. life insurer, said yesterday that the “vast majority” of survivors benefit from the service.
The practice has “in recent days come under a great deal of criticism that is needlessly inflammatory and flat-out wrong,” Prudential said in a statement on its website. Retained-asset accounts “provide a place for beneficiaries to safely keep their money while they decide what do with it.”
Prudential said state guarantee funds provide at least $250,000 in protection and that the company tells customers that the accounts aren’t insured by the Federal Deposit Insurance Corp. The accounts “are backed by the financial strength of Prudential,” the Newark, New Jersey-based firm said.
Robert Henrikson, chief executive officer of No. 1 MetLife, said last month in a conference call that accountholders “love” the service. The New York-based insurer retains about $10 billion in death benefits on behalf of survivors.
New York Attorney General Andrew Cuomo last month opened a fraud probe into the accounts. This week, the FDIC announced a review of whether life insurers misled accountholders about guarantees.
U.S. Representative John Garamendi of California, the state’s former insurance regulator, and Robert Damron, who heads a national group of state legislators focused on insurance law, said that a MetLife document casts doubt on whether survivors’ money is protected by state funds. MetLife tells beneficiaries whose death payouts stay with the firm that they’re creditors and should have no expectation of a “special relationship” with the insurer.
The National Organization of Life & Health Insurance Guaranty Associations said in a July 29 statement that retained- asset accounts would be protected in insolvencies. MetLife has also said the accounts are backed by state funds.
‘The Ultimate Sacrifice’
Soldiers “need to have certainty that if they are called upon to make the ultimate sacrifice, their families back home will be protected by their death-benefit policies,” Villines said. “If we find that any insurance company has not lived up to the letter of the law, they should receive the most severe punishments and sanctions possible.”
An investigation would determine if California residents have been harmed by the retained-asset accounts, in which companies profit by investing the funds, Villines said.
Poizner’s office is “closely examining this issue,” the department said today in a statement.
“In the past two years, we have received less than six complaints in California,” said Byron Tucker, a spokesman for Poizner. “While we do not see any disturbing trends developing, we strongly urge beneficiaries to contact us if they feel they’ve been wronged by their insurer or have any concerns.”
Georgia’s regulator, John Oxendine, said this week that he began an investigation of Prudential and MetLife.
Insurance companies lack a federal regulator. Oversight is carried out by state commissioners according to rules enacted by their legislatures. The National Association of Insurance Commissioners, a group that helps lawmakers formulate policy, scheduled an Aug. 15 meeting to be held at its conference in Seattle to begin a review of retained-asset accounts.