Met Life May Be Fined, Asked to Refund Policyholders Up to $76 Million : Insurance: Multistate proposal attempts to settle a five-month investigation of the company’s sales tactics.

Metropolitan Life Insurance Co. would be fined $20 million and asked to refund policyholders up to $76 million under a multistate proposal to settle an investigation of the company’s sales practices, Florida Insurance Commissioner Tom Gallagher said Sunday.

A Florida investigative report released Sunday said the New York-based insurer willfully ignored its agents’ widespread use of misleading sales tactics that violated many states’ laws. The methods included the use of millions of sales letters that touted a retirement plan without identifying life insurance as the product for sale, Gallagher said.

Met Life spokesman Charles Sahner said the amount of the proposed fine is “excessive.”

“We think the priority should be on protecting policyholders, not on punitive measures,” Sahner said. But he added that Met Life, the nation’s second-largest insurer, will try to decide in the next few days what course to pursue.

Met Life representatives are scheduled to meet with a group of state insurance regulators in Denver today to discuss the proposed fine. Sahner said Saturday that the company is considering scrapping the comprehensive settlement framework and reverting to state-by-state solutions.

Gallagher said Met Life has agreed to offer refunds to as many as 60,000 policyholders across the country. While Gallagher has estimated the amount of refunds to be as high as $76 million, Met Life has estimated the probable figure at about $50 million.

Gallagher said the company also has agreed to set up a new ethics and compliance unit consisting of about two dozen employees, to be headed by Vice President Donald Stadler.

A $20-million fine “is a tremendously big number” by insurance regulatory standards, Gallagher said. It reflects the states’ consensus that Met Life committed “totally unacceptable, horrendous acts, which hurt the smallest people that could be hurt.”

Gallagher headed a multistate task force that investigated Met Life’s sales activities.

The proposed fine was agreed to Sunday by 47 states and the District of Columbia at a National Assn. of Insurance Commissioners meeting in Denver, he said. Pennsylvania, Georgia and Massachusetts were not part of the agreement because they have already imposed fines totaling $2 million on Met Life.

The states agreed that $12.5 million of the fine should be paid in cash to all the states based on the number of policyholders affected, Gallagher said. Regulators haven’t yet agreed on how the remaining $7.5 million would be used, he said. Among the options are additional restitution to policyholders, a fund to ensure Met Life’s compliance with state laws, and a consumer education fund, he said.

Florida would receive the biggest chunk of the cash fine because it has the most affected policyholders, Gallagher said. The state would receive $2.2 million for these 10,172 customers, he said.

Today’s investigative report by Thomas Tew, special counsel to the Florida Department of Insurance and the Florida attorney general, faulted the upper ranks of Met Life’s management.

Tew’s report, which capped a five-month investigation, faulted Met Life’s management for “tacit approval” of questionable sales tactics and failure to act on numerous indications of sales abuses.

The abuses occurred in virtually every area of the country, said the Miami attorney’s report.

Tew’s findings were immediately disputed by the New York-based insurer.

“We made a series of efforts over a period of time to enforce company policy,” said Met Life’s Sahner. “They weren’t as effective as we would have wished.”

Sahner said the number of policyholders affected by the improper tactics “are relatively small” in comparison with the 20 million customers who own Met Life’s life insurance policies.

Tew’s report specifically cited Met Life’s Executive Vice President Robert Crimmins, who heads the company’s 13,000-agent sales force, and the legal department, which is responsible for reviewing sales materials. These executives failed to halt millions of misleading sales letters sent by the company’s Tampa, Fla., office under the supervision of Daniel (Rick) Urso, the report said.

“Met’s management style (is) that of ignoring the problem in the hope that it will disappear, like an ostrich burying its head in the sand,” said the 57-page report. “It is difficult to conceive of a scenario whereby the knowledge of the Urso activities could have been more widespread than it was at Met.”