Minn. slaps 4 life insurance giants: Prudential, John Hancock, MetLife, ING

  • Article by: JENNIFER BJORHUS
  • Star Tribune
  • August 16, 2012 - 8:36 PM

State insurance regulators have sanctioned four of the largest life insurance companies that operate in Minnesota for allegedly steering death-benefit recipients to keep the money in special accounts the companies run, instead of taking lump sum payouts.

The companies -- Prudential, John Hancock, MetLife and ING -- were each fined $200,000 and ordered to change their claims forms in Minnesota and re-establish cash lump sum payouts as the default option, according to the consent orders the state Department of Commerce released Thursday. The pacts don't provide direct compensation for individual consumers.

The department estimates that thousands of Minnesotans were affected by confusing paperwork and said the practices have gone on for years and, in the case of some companies, decades. The companies agreed to the penalties without admitting wrongdoing.

"Some folks don't even realize that they could have had a lump sum payment," Commerce Commissioner Mike Rothman said in an interview. "It's certainly wrong. It's inappropriate."

The insurance company accounts aren't FDIC insured like a bank account, and function like a money market account. The company gives beneficiaries access to the death benefit money and pays interest on it -- a Prudential spokesman said it pays around 0.5 percent. Meanwhile, the companies invest the money and pocket the profits as a bank would.

The four insurers together have about 680,000 such death benefit accounts nationally holding about $19 billion, according to the Minnesota Department of Commerce. The department did not provide numbers for Minnesota, but said it's likely that thousands of people in the state have been affected.

State investigators discovered problematic claims forms during a probe that started about 10 months ago. The forms were allegedly hard to understand and resulted in many people unwittingly enrolling in an option to hold benefits in a "retained asset account" run by the insurance company, the agency said.

The investigation is part of a broader state look at how life insurance companies handle unclaimed death benefits when beneficiaries aren't located. Rothman said that investigation is ongoing.

Separately, MetLife Inc. and Prudential Financial Inc. were sued last year in Minnesota for allegedly failing to pay death benefits on hundreds of Minnesotans' policies because nobody claimed them. The plaintiff is a privately held investigative company out of Michigan.

At issue in the new sanctions are benefits that were claimed, but instead of being paid out at once were placed into the "retained asset accounts" insurers commonly use.

Retained asset accounts came under scrutiny following a 2010 Bloomberg Markets investigation, "Duping the Families of Fallen Soldiers," that detailed the largely unregulated and profitable practice.

Earlier this year, New York became the first state to require insurers to immediately pay out death benefits, effectively prohibiting the use of retained asset accounts.

A spokesman for Prudential Financial Inc., based in Newark, N.J., said Thursday that the company is "pleased to resolve this matter and will comply with the order."

"It's important to note that no one was denied benefits that they were entitled to receive," Prudential spokesman Bob DeFillippo said.

Prudential manages the life insurance program for the U.S. Department of Veterans Affairs.

A spokeswoman for New York-based MetLife Inc. said the agreement resolves the matter and "allows the company to continue to offer the total control account as a valuable service option to its customers in Minnesota."

A spokesman for ING, whose U.S. operations are based in New York, declined to comment. John Hancock did not respond Thursday.

Jennifer Bjorhus • 612-673-4683

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