California subpoenaed MetLife, the largest U.S. life insurance
company, to testify at a public hearing on May 23 about how it
handles unclaimed assets that belong to beneficiaries.
The hearing mirrored a situation that MetLife found itself in
last Thursday, when it appeared before Florida Insurance
Commissioner Kevin McCarty to answer questions on the same issue.
(Here's more on the
Florida life insurance hearing
.) Today's investigative hearing in Sacramento before California
Insurance Commissioner Dave Jones and State Controller John Chiang
promised to be even rougher.
Later in the day, California also announced market conduct
examinations of 10 large
companies for failure to pay life insurance benefits to
beneficiaries or the state after learning of an insured's death.
MetLife, John Hancock Insurance, Prudential Insurance, Nationwide
Insurance, The Hartford, Sun Life Financial, New York Life
Insurance Co., Lincoln National Life Insurance Co., Aegon Group
(which includes Transamerica) and Pacific Life Insurance Co. are
Hundreds of millions owed in life insurance benefits
Jones says he has already uncovered evidence that for two
decades MetLife failed to pay benefits to beneficiaries or the
state after learning that an insured had died. (Here's more on
why your life insurance company doesn't care if
During the hearing, California officials quoted academics who
said that hundreds of millions of dollars in life insurance go
unclaimed each year for one simple reason: The beneficiaries don't
know the money exists.
Among the possible violations of California law listed at the
- Unfair claims settlement practices.
- Failure to "escheat," or turn over money to the state, when
beneficiaries could not be found.
- Failure to adequately control and monitor dormant retained
asset accounts, which insurers use to pool benefits that haven't
yet been collected.
"Do (insurers) use cash values to pay themselves premiums after
the death of the insured?" California regulators asked in a
PowerPoint presentation just prior to the testimony of MetLife, the
sole witness in the hearing.
The insurer was expected to acknowledge - as it did in Florida -
that it didn't use the "Death Master" file, a Social Security
database of people who've died, until 2007, when it began matching
the list against its customers' policies. The company has said that
it hadn't used the database on a regular basis until the end of
last year. The Death Master file has been in existence since the
However, MetLife spokespeople have denied they did anything
"Our priority is to pay insurance benefits to those who are
entitled to them," said spokesperson Chris Breslin in a statement
prior to the hearing. "When beneficiaries cannot be located, we
turn those benefits over to the state."
A small percentage
Using the Death Master file during 2007, MetLife turned up $51
million in unclaimed assets that went to beneficiaries and another
$32 million that went to the state.
While that amount may seem large, it is less than 0.2 percent of
the $44 billion in death benefits paid on individual life insurance
policies over the same period, which dates back to the 1950s.
"Our experience … has shown us that over 99 percent of life
insurance claims proceeds are paid as a result of routine
notification and claim submission processes," said Breslin.
$1 billion in life insurance unclaimed
At the Florida hearing on May 19, McCarty said he estimated that
life insurers may owe beneficiaries and the 50 states more than $1
billion in unclaimed assets - money that is sitting in the
insurers' retained asset accounts, which currently hold more than
$28 billion, according to California officials.
A McCarty spokesman said the $1 billion figure came from Verus
Financial LLC, a Connecticut firm that has been hired by 35 states
to find unclaimed assets for state treasuries, and from discussions
with other regulators.
However, even $1 billion is not large by life insurance
standards. At of the end of 2010, life insurers' assets totaled
about $5.3 trillion, according to Steven Weisbart, a vice president
of the Insurance Information Institute.
"Total death benefits paid over the past 20 years are about $600
billion," says Weisbart. "In relation to that, $1 billion is 1/6 of
1 percent, or 0.17 percent."
Canadian life insurer Manulife, which owns U.S.-based John
Hancock, has already settled with both Florida and California and
agreed to change its payment practices in both states.