Calling it a "conservative" estimate, Florida Insurance Commissioner Kevin McCarty says 40 of the largest U.S. life insurance companies may owe policy beneficiaries more than $1 billion.McCarty made the claim after completing the first stage of an evidentiary hearing today on how life insurers were using the Death Master File, a Social Security Administration list of those who have died.
The nation's largest life insurer, MetLife, was grilled by McCarty, who heard testimony that MetLife has been using the Death Master File since the late 1980s to determine when to halt annuity payments to its clients but did not use the list until 2007 to determine whether an insured had died so his or her beneficiaries could be paid.
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And the company only began using it in a systematic and comprehensive way toward the end of 2010, according to MetLife representatives who were subpoenaed and testified under oath at today's hearing.
Nationwide Financial senior vice president of life operations Peter Golato testified that his company had run a check of its life insurance policies through the same process it uses for annuities.
''As a result of that scan, we found that approximately 1,000 policies or less than one-tenth of 1% of our book of business matched positive, where the policyholder may have passed away and benefits may be due. While only a tiny fraction of our life business, we have already found more than 70% of these policies' beneficiaries and are in the process of assisting the beneficiaries in making a claim so we can deliver all benefits including interest," he said.
35 insurance investigations
Asked after the meeting the total amount all insurers likely owed, McCarty said it was difficult to determine, but estimated "somewhere north of $1 billion."
At least 35 states have begun investigations into whether life insurance companies have failed to find beneficiaries for life policies and how much has either been kept by insurers or "escheated" -- that is, turned over to the states to try to find the rightful owner -- instead of paid to the beneficiaries.
McCarty described those actions as a "pervasive practice," and promised a "broader investigation looking at the largest insurance companies in America." He said the end result would involve 40 companies representing 92% of all the life insurance and annuities in the country.
'Track down anybody'
Regulators who attended the meeting sounded incredulous that MetLife and other life insurers couldn't track down missing beneficiaries when they didn't come forward. Usually it's the beneficiary's obligation to find the insurance company after an insured person dies. But that could change now that regulators are aware that some insurers have used the Death Master File to figure out when to stop paying on annuities, but not when to make payouts to life insurance beneficiaries. It is a situation McCarty calls "a mismatch."
