New York Attorney General Andrew Cuomo began a fraud probe into the life insurance industry and subpoenaed
MetLife Inc. and
Prudential Financial Inc. for information about profits on death benefits retained from the families of deceased policyholders including military personnel.
“It is shocking and plain wrong for these multinational life insurance companies to pocket hundreds of millions in profits that really belong to those who have lost family members,” Cuomo said in a statement today. “The insurance industry appears to be hoarding millions that belong to military families whose loved ones have made the ultimate sacrifice.”
Cuomo's investigation into what he called “secret profits” was prompted by Bloomberg Markets magazine report and follows a review by the New York State Insurance Department. More than 100 carriers earn investment income on $28 billion owed to life insurance beneficiaries, the magazine reported. New York-based
MetLife, the biggest U.S. life insurer, and No. 2 Prudential are among the firms that administer the so-called retained-asset accounts.
“It's troubling that people are not getting an immediate payment and that the insurance companies at least seem to be making some effort to make money off this,” Matthew Gaul, deputy superintendent and head of the New York regulator's life insurance division, said yesterday in an interview.
Insurance companies may be violating a federal bank law, Bloomberg Markets reported. A 1933 statute makes it a felony for any company to accept deposits without state or federal authorization. The insurer accounts aren't guaranteed by the Federal Deposit Insurance Corp.
‘There's a Question'
“We're looking at the legality of this whole process,” Gaul said. “There's a question of whether this is really a banking business.”
MetLife and Newark, New Jersey-based Prudential place death benefits in interest-bearing accounts and issue IOUs to survivors. Insurers market the accounts as a service to allow bereaved beneficiaries time to think about what they'll do with the payout. Carriers make money by investing the funds in bonds and keeping the difference between returns and the interest they credit to the accounts.
Prudential paid survivors like Cindy Lohman, the mother of a slain Army sergeant, 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings. Lohman told Bloomberg Markets that her IOUs were rejected twice by salespeople when she tried to use them to make retail purchases.
‘Full Access'
“Beneficiaries have full access to the money in their retained asset accounts and can withdraw the full amount right away or at a later date,” the American Council of Life Insurers, the industry lobby headed by
MetLife Chief Executive Officer Robert Henrikson, said in a statement. “Retained asset accounts provide a significant benefit to family members who are dealing with the emotional loss of a loved one.”
Thomas Considine, commissioner of the New Jersey Department of Banking & Insurance, said he instructed staff to question Prudential about Lohman's rejected IOUs.
The New York regulator plans to issue a letter to insurers urging greater disclosure of the accounts' terms and the absence of an
FDIC backstop, Gaul said. The watchdog will then consider whether any rules would prohibit insurers from providing the accounts, Gaul said.
Pennsylvania Insurance Commissioner Joel Ario is considering a plan to require insurers to obtain the consent of beneficiaries before creating an account on their behalf. He said in an interview that his staff is studying the issue.
“Prudential and its Alliance Accounts are in compliance with all applicable laws and regulations,” Bob DeFillippo, a spokesman for Prudential, said yesterday. Christopher Breslin, a spokesman for
MetLife, had no immediate comment.
MetLife's Joseph Madden told the magazine that customers were happy with the accounts.
State Protection
Considine, of New Jersey, said his department has never received a complaint about retained accounts. State guarantee funds backstop insurers and provide account holders with protection against default by carriers, Considine said.
“They do bring a very, very real consumer benefit,” Considine, who was familiar with the accounts during his 17-year career at
MetLife, said in an interview. Insurers shouldn't be required to obtain consent to open accounts for beneficiaries because sometimes the bereaved aren't ready to consider their options for the cash, Considine said.
