Oct. 11 (Bloomberg) -- MetLife Inc., the largest U.S. life insurer, has joined American International Group Inc. by taking a charge tied to reserves for death benefits as regulators probe the industry’s practices for unclaimed funds.
MetLife said last week that it will take a third-quarter charge of $115 million to $135 million as it uses data such as Social Security Administration death records to identify cases where it hadn’t paid claims. AIG said in August that it added about $100 million to reserves in the second quarter after changing its process for determining when policyholders die.
Insurers may have accumulated at least $1 billion in unclaimed funds, Florida Insurance Commissioner Kevin McCarty said in May. State regulators are intensifying probes into unpaid benefits and New York has begun forcing life insurers licensed in the state to make payments based on government death records and report on the results.
“We’re still in the early innings, mostly because the regulatory investigations are going on,” said Brendan Bridgeland, director of the Cambridge, Massachusetts-based nonprofit Center for Insurance Research. Bridgeland said he expects to see “state regulators preparing guidelines, maybe a model law and standards for insurers.”
Life insurers are generally required to pay claims after being notified that a policyholder has died and receiving a valid death certificate. In cases when they weren’t notified, they were able to hold funds until the insured would be about 100 years old, plus three to five years, depending on the state. Then the companies had to turn over the funds to the government as unclaimed property.
Life insurers had used databases to determine when to stop paying beneficiaries for some retirement products, said Joseph Belth, professor emeritus of insurance at Indiana University in Bloomington and editor of the Insurance Forum.
When regulators “discovered that the companies routinely check the Social Security database to find people who died so they could stop annuity payments, but they weren’t doing the same for life insurance, it made for good headlines,” said Belth. “So now they’re having to go back and check.”
MetLife began using the Social Security Death Master File to stop some annuity payouts starting in the late 1980s, Todd Katz, an executive vice president at the New York-based insurer, said at a May hearing in Florida.
The insurer in 2007 used the list to review most of its life policies, he said. Last year, the company decided it would check the list at least once a year. When matches are made, an investigation begins and beneficiaries are contacted, Katz said.
MetLife checked group life policies for the first time against the databases, which contributed to the charge announced last week, said Christopher Breslin, a spokesman.
“Routine matching of our administrative records against the Death Master File is a best business practice and provides a valuable safety net for those small percentage of beneficiaries who don’t put forth a claim through the ordinary process,” he said. The charge “represents about 1 percent of the roughly $11 billion in death benefits that we pay annually.”
AIG’s claims practices for life policies “are currently, and have been completely consistent with all the applicable legal requirements and all of the historical industry standards,” Jay Wintrob, chief executive officer of AIG’s SunAmerica life unit, said on a conference call with analysts after the charge was announced in August.
AIG has said it received regulator inquiries into claims-settlement practices as part of an industrywide probe. Mark Herr, a spokesman for New York-based AIG, declined to comment.
MetLife said in August that its compliance with unclaimed-property laws was being audited in more than 30 jurisdictions, and disclosed that it may face payments to beneficiaries, penalties or changes in procedures. Prudential Financial Inc., the No. 2 U.S. life insurer, is being examined on behalf of 33 U.S. jurisdictions, according to and August filing.
New York Attorney General Eric Schneiderman subpoenaed nine insurers including MetLife and Prudential in June over unclaimed property procedures, a person familiar with the matter said the next month. New York’s insurance regulator said in July it was requiring the 172 companies and fraternal benefit societies licensed to sell life coverage in the state to start using Social Security records.
Some probes have yielded settlements. John Hancock, a unit of Toronto-based Manulife Financial Corp., agreed in April to restore the full value of more than 6,400 accounts, with more than $20 million returning to policyholders or beneficiaries, according to the California controller’s office. It also agreed to improve methods to determine if policyholders have died.
Separately, Florida’s insurance office announced a settlement with John Hancock, which agreed to pay beneficiaries, with interest. The settlement includes a payment of $3 million to the state, of which $600,000 was waived, according to a May 18 statement from the regulator.
John Hancock denied any wrongdoing and agreed to establish a $10 million fund for payments to beneficiaries who can’t immediately be found, the office said. The deal is consistent with the insurer’s commitment to meeting its obligations, John Hancock said in a statement in May.
“This is an opportunity for states to find money, and to the extent that that’s the case, they may seek larger sources of funds,” said Randy Binner, an analyst at FBR Capital Markets. “Larger insurers would be more at risk, because various state interests could view them as a larger source of funds.”
The National Association of Insurance Commissioners, the organization of state regulators, said in May that it had formed a task force to help coordinate the investigations.
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