Ultimate Irony- Major Life Insurance Firms Settle with State AG’s
Courtesy of Dr. Paul Price (at Real Money) [7]
MetLife, Prudential and John Hancock agreed to pay $40 MM, $17 MM and $12 MM respectively to make a multi-state probe go away.
These companies were routinely cross-checking Social Security death records to prevent recurring annuity benefit payments going out to deceased policy holders. That seems fair and logical. In fact, SS itself has been criticized for wasting huge sums sending out checks to dead people.
What was the focus of the probe then? These companies did not voluntarily use this same data to offer death benefits to heirs of life insurance policies. Benefits were paid only if a claim was filed. That was standard operating procedure and perfectly legal, if not a really savory business practice. Do you pay your personal bills if they are never presented to you?
Florida’s insurance commissioner said it was a landmark settlement in terms of the amount of money ($400 MM) being paid out to consumers. Now that the largest firms have settled, many smaller companies are being targeted for the same practice.
Here’s where the irony comes in.
The Wall Street Journal said the probes started when an ambitious, minor league auditing firm approached several cash-strapped states with the idea that they could seize these unclaimed life policies as ‘abandoned property’. 35 states signed up for this cash grab, contracting with Verus Financial LLC and promising them a cut of their eventual take.
The states, now calling out the insurance companies for failing to seek out rightful beneficiaries, were looking to take these unpaid death benefits for themselves- not consumers.
It is unclear when the decision to switch up to the more altruistic purpose was made. Perhaps someone involved finally grew a conscience.
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Government agencies looking to confiscate other people’s money apparently are not at all unusual in today’s world. I was surprised to find clauses in the fine print of every on-line bank account telling depositors that if they didn’t access their accounts for just 12 consecutive months that the entire balance would be turned over to their home state under that same abandoned property clause. It’s easy to think that savers, especially those with multi-year CDs would have no reason to keep checking on their accounts. Heirs of account holders that died might not even know these accounts existed.
Poof, all your money could be taken away without notice by either your bank or your home state.
Similarly, many states are now confiscating unused gift or prepaid card balances as soon as two years after purchase. AMEX and some other firms are rebelling against New Jersey’s requirement to have buyers of their prepaid cards give zip codes- allowing NJ to lay claim to any dollar amounts not used promptly.
It appears that governments can take consumer value without hesitation even as they accuse private industry, and extort fines from them, for doing exactly the same thing.