Yesterday,
MetLife Inc.
(
MET
) admitted charges of about $500 million in a multi-state
investigation where the regulators found the life insurer guilty of
blocking the funds allocated for the death beneficiaries.
Over the past year, the regulators in the states of California,
Florida, Illinois, New Hampshire, North Dakota and Pennsylvania,
among others, had conducted an inquiry on the life insurers
regarding unpaid benefits to the nominees of the dead
policyholder.
In May last year, the Florida commissioner had estimated over
$1.0 billion of funds that remain unpaid. Subsequently, the New
York court had instructed all the life insurers in the US industry
to track the latest social security data in order to ascertain the
number of death claims due by any company.
Since then, life insurers have been consistently accessing the
social security data, also known as the Death Master list, but they
put in use only to stop the annuity payments to the dead
policyholders. In January this year, MetLife's prime peer
Prudential Financial Inc.
(
PRU
) was also entangled in such an issue, whereby the latter settled
claims in over 20 US states and had to shell out a hefty sum of 17
million.
American International Group Inc.
(
AIG
) had already set aside $202 million in its reserves last year, to
deal with such death benefit issues.
The National Association of Insurance Commissioners (NAIC) also
informed that both MetLife and Prudential are yet to settle these
cases in another eight states, where the Death Master list is being
examined by the regulators. The NAIC also believes that more
insurers could come underway the probe, while alternately, this
investigation and settlement charges slapped on the life insurers
should impel other insurers in the industry to streamline their
claims and benefits payment processing according to the code of the
insurance contract.
Accordingly, MetLife has acknowledged the benefit payments due
worth $438 million along with a $40 million charge to state
insurance departments related to the settlements. However, the
company has agreed to shell out $188 million in 2012, while the
remaining payments will be done from time to time over the next 17
years.
The settlement also requires MetLife to make full payments on
all accounts that were improperly illustrated. Further, complying
with state unclaimed property laws, the company has to pay a
compound interest of 3% on the held-back amounts, beginning either
the date of the policyholder's death or January 1, 1995, whichever
came later.
In another such instance, the regulators in New York have nailed
down the insurers for about 33,000 payments worth $262.2 million,
which remain unpaid to the policyholders' beneficiaries who did not
file for claims. Previously, in December last year, the New York
state had helped attain $52 million in payouts to the
beneficiaries.
Going ahead, MetLife is also establishing an online database to
track its policyholders' status every month, which will help the
company trace even those who do not have a social security number
or date of birth. However, had these initiatives were taken at an
appropriate time, the companies along with MetLife could have saved
themselves from being reprimanded by the regulators and also
avoided the extra cost incurrence, both of which is expected to mar
the goodwill of the company and its financials.
AMER INTL GRP (
AIG
): Free Stock Analysis Report
METLIFE INC (
MET
): Free Stock Analysis Report
PRUDENTIAL FINL (
PRU
): Free Stock Analysis Report
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