California officials, setting their sights on life insurance companies, want to know whether executives are boosting profits by delaying or failing to pay death benefits quickly enough to heirs or to search aggressively for the beneficiaries.
Unpaid life insurance benefits nationwide exceed $1 billion, according to the National Assn. of Insurance Commissioners. It's not known how much of that involves California policies.
"I am concerned that the insurance industry is not holding up its end of the sacred bargain it stuck with its clients when it issued life insurance policies in the first place," state Controller John Chiang said at a hearing Monday.
Chiang and Insurance Commissioner Dave Jones held an unusual investigative hearing aimed mainly at MetLife Inc. managers, who testified under oath. The hearing, similar to one last week in Florida, is part of a coordinated multistate probe.
During the hearing, Jones announced that he had ordered regulators to undertake market conduct examinations of such alleged practices by MetLife and nine other of the biggest life insurance companies licensed by the state Department of Insurance.
MetLife executives denied that they were dragging their feet on paying benefits. "Our greatest responsibility is to make good on our promises to our customers," MetLife Vice President Todd Katz said.
Jones and Chiang are concerned about whether MetLife and other insurance companies may be boosting profits by the alleged selective reviewing of a Social Security master death list.
Initial evidence indicates that some insurers are failing to pay death benefits in a timely manner and instead are using the built-up cash value of insurance policies to continue to pay premiums to themselves "even though the insurer has notice of the death from a death master [list] or another source," Jones said.
"We are troubled about the possibility that insurers may be using death information to boost their finances by stopping annuity payments on one side of the house but not using the same information on the other side of the house to pay policyholders' beneficiaries who are owed money," he said.
Annuities are financial products purchased by individuals to secure guaranteed lifetime incomes.
The MetLife probe follows the April 22 settlement for $22 million of similar allegations brought by the state against John Hancock Life Insurance Co, part of a three-year audit of 21 life insurers conducted by the state controller.
"The audits … found that insurers did not routinely cross-check the owners of dormant accounts with government databases listing the deceased," Chiang said. "In other cases, the company had direct knowledge of the death of a policy owner but still did not notify the beneficiaries."
MetLife told regulators it welcomed their attention and hoped to use information from the hearings in California and other states to improve its record-checking systems.
The company said it's had particular difficulty locating some owners of so-called Industrial Policies, which provide modest benefits and were sold by door-to-door salesmen in the first half of the last century. Some of those policies do not contain policyholder Social Security numbers.
Katz said MetLife paid out more than $11 billion in death benefit claims last year.
MetLife, he said, has increasingly used the master death list to upgrade its processes to determine whether annuitants or life insurance policyholders were dead. The list was used initially to indentify annuitants in the late 1980s.
But the company's first full-scale sweep of all its life insurance policies didn't occur until 2007, Katz said.
The sweep found about $80 million in unpaid death benefit claims: About $50 million went to identified beneficiaries and $30 million, whose beneficiaries could not be found, went to unclaimed property accounts administered by government agencies in California and other states, Katz said.
A new, more comprehensive sweep began last year and is expected to continue through the end of this year, he said.
The overwhelming majority of claims are submitted to the company by heirs, who provide copies of death certificates, Katz said. The Social Security master death list provides "a useful safety net when the normal processes do not work," he said.
Better tracking policies should be more than just a safety net, Chiang said.
The company's motto — "Get Met. It Pays" — may not be totally accurate "because it's unclear at this time what they pay," the controller said.
"They have a business-based rationale for their practices instead of a consumer-based approach to fulfill their promises."