Calling it a "conservative" estimate, Florida Insurance
Commissioner Kevin McCarty today said that 40 of the largest U.S.
companies may owe policy beneficiaries more than $1 billion.
McCarty made the claim at a hearing after completing the first
stage of an evidentiary hearing on how life insurers were using
"Death Master," a Social Security Administration list of those who
The nation's largest life insurer, MetLife, was grilled by
McCarty, who heard testimony that MetLife had been using Death
Master since the late 1980s to determine when to halt annuity
payments to its clients. Although MetLife used Death Master to
figure out when to cease annuity payments, the insurer did not use
the Death Master list until 2007 to determine whether an insured
had died so his or her beneficiaries could be paid. And the company
was only beginning to use it in a systematic and comprehensive way
toward the end of 2010, according to MetLife representatives who
were subpoenaed and testified under oath at today's hearing.
Nationwide Financial also testified at the Florida hearing, with
Senior Vice President of Life Operations Peter Golato claiming that
his company had run a check of its life insurance policies through
the same process it uses for annuities.
''As a result of that scan, we found that approximately 1,000
policies or less than one-tenth of 1 percent of our book of
business matched positive, where the policyholder may have passed
away and benefits may be due. While only a tiny fraction of our
life business, we have already found more than 70 percent of these
policies' beneficiaries and are in the process of assisting the
beneficiaries in making a claim so we can deliver all benefits
including interest," he said.
35 insurance investigations
When asked after the meeting the total amount of what all
insurers likely owed, McCarty said it was difficult to determine,
but estimated "somewhere north of $1 billion."
At least 35 states have begun investigations into whether
life insurance companies
have failed to find beneficiaries for life policies and how much
has either been kept by insurers or "escheated" -- that is, turned
over to the states to try to find the rightful owner instead of
paid to the beneficiaries.
McCarty described these actions as a "pervasive practice," and
promised a "broader investigation looking at the largest insurance
companies in America." He said the end result would involve 40
companies representing 92 percent of all the life insurance and
annuities in the country.
'Track down anybody'
Regulators who attended the meeting sounded incredulous that
MetLife and other life insurers couldn't track down missing
beneficiaries when they didn't come forward. Usually it is the
beneficiary's obligation to find the insurance company after an
insured person dies. But that could change now that regulators are
aware that some insurers have used Death Master to figure out when
to stop paying on annuities, but not when to make payouts to life
insurance beneficiaries. It is a situation McCarty calls "a
"You can track down anybody these days," said Pennsylvania
Insurance Commissioner Michael Consedine.
McCarty touched on, but didn't elaborate on, whether the
investigations and the need to reserve more funds for payouts could
have an impact on life insurers' earnings and balance sheets.
MetLife didn't directly refute McCarty's estimate of $1 billion,
but indicated that in 2007 it paid out $11 billion to policyholders
and beneficiaries and escheated only $51 million to the states.
A safety net
MetLife said it will now use Death Master, along with other
databases and checks, as a "safety net" to avoid missing any
beneficiaries. But insurance regulators seemed unconvinced.
"A safety net is only as good as its ability to catch everyone,"
Manulife's John Hancock insurance unit has already settled with
both Florida and California, agreeing to improve its practices. The
settlements "help John Hancock maintain its place in the forefront
of caring for our insureds and their beneficiaries," the company
said in a press release.
McCarty said that other investigations would continue.
California is expected to hold its own hearing on May 23.
The Florida commissioner said that a team of lawyers would look
at the John Hancock agreement and put together a "template" of
procedures insurers should follow to maximize the matchups between
policies and beneficiaries.
"We need to establish model laws and regulations," said McCarty,
who is the National Association of Insurance Commissioners' (NAIC)
president-elect. The NAIC sets the standards for insurance
regulation, which is carried out at the state level.
States began investigating this issue because they believed
insurers weren't escheating the funds due them. But McCarty said
the real victims were "a lot of folks who don't know that their
parents or grandparents had policies. The insurers are the only
ones who know."