Regulators nationwide are pushing life insurers to do a better job of tracking when policyholders die and locating the beneficiaries — an effort that could reap billions of dollars for consumers.
Insurers regularly monitor Social Security's Death Master File to verify the death of a customer receiving annuity payments so they can cut off checks. But an ongoing, multistate investigation has found that life insurers haven't been using this information to identify policyholders who died and to pay beneficiaries.
"We found this practice to be pervasive through the industry," says Kevin McCarty, the insurance commissioner for Florida, one of the lead states in the investigation.
Insurance regulators, rightfully so, say companies have a responsibility to do more.
Last week, regulators announced a settlement between MetLife, the nation's largest life insurer, and dozens of states, including Maryland. MetLife, without admitting any wrongdoing, agreed to pay $40 million to the states — with nearly $689,000 going to Maryland — as well as life insurance benefits to consumers nationwide that could amount to more than $500 million.
MetLife also agreed to beef up its efforts to regularly search the Death Master File for deceased policyholders and, when a death is discovered, to conduct a thorough search for the beneficiaries.
This isn't the first settlement by an insurer, and it likely won't be the last.
The standard practice in the industry is to pay a claim when the beneficiary comes forward after the death of the policyholder. But this system doesn't always work.
Far too often, policyholders don't tell beneficiaries the name of the insurer, where the policy is kept — or, worst of all, that they even have a life insurance policy to begin with.
Beneficiaries may have trouble tracking down the insurer, which could delay their payout. Or they might discover they are entitled to money only after it has been turned over to the state as unclaimed property. The state tries to track down beneficiaries.
(Marylanders might get additional help locating benefits. Legislators recently passed a bill that would require insurers to check the Death Master File or another comprehensive database to uncover any death benefit payments due. This would take effect next year, if the governor signs the legislation.)
Policyholders, of course, bear a responsibility to inform family or others about a policy. But this additional push by regulators will help.
McCarty says some states began looking into the issue a couple of years ago when they noticed that a surprisingly small number of life policies — given the size of the industry — were turned over to states as unclaimed property. A half-dozen states banded together to lead an investigation. (Maryland isn't one of them.)
They found that many insurers use Social Security's Death Master File when it benefited them but not when it helped consumers. It's a practice that insurance experts say has gone on for many years — but one that still raised eyebrows when it came to light.
"People were surprised that life insurers were using the Death Master File for one purpose and not the obvious purpose," says Amy Danise, editorial director with Insure.com, a provider of insurance information.
McCarty says regulators aim to look into the top 40 companies, which account for more than 90 percent of the marketplace. He estimates that by the time the investigation is over, regulators will recover more than $2 billion.
MetLife was the largest settlement to date.
Prudential, without acknowledging wrongdoing, reached a $17 million settlement with Maryland and other states earlier this year.
Spokesman Bob DeFillippo says Prudential has been cross-checking the Death Master File against life insurance policies since 1998, and agreed to go back to 1992 as part of the settlement.
"We are happy to do it," DeFillippo says. "This is something we think is important to do."
The company isn't sure how many unpaid claims are out there, but last year it set aside $139 million pre-tax to cover any benefits owed.
Even with the settlements, consumers need to do their part.
Joy Hatchette, an associate commissioner with the Maryland Insurance Administration, says policyholders must keep family members aware of policies purchased and where they are kept.
"Parents tend not to share all their information with their children," she says. "They have to realize by not doing that, it makes it [impossible] after they are no longer with us to collect on that policy they have been paying on for years and years."
If an insurer has been acquired by another, the Maryland agency can help beneficiaries track down the new owner. The agency can be reached at 800-492-6116.
Mary Kwei, a chief investigator with the state agency, says beneficiaries should also check a deceased person's bank statements for payments to an insurer for clues to an outstanding policy.
"That's the best detective work you can do on your own," she says.
If you think an insurer owes you money, contact the company instead of waiting for it to reach out to you. Search for a MetLife policy at metlife.com/policyfinder. Or call Prudential at 800-778-2255.