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.