MetLife on Monday became the third big life insurer to settle regulatory accusations of failing to keep track of policyholder deaths, trapping money that should have gone promptly to the beneficiaries.
MetLife agreed to pay states including California, Illinois, Florida and Pennsylvania a total of $40 million in a negotiated settlement. A spokesman for MetLife, John Calagna, said the company also expected to release to beneficiaries around the country about $188 million this year, and that over the next 17 years it might distribute as much as $438 million. In cases where no survivors can be found, the money will go to the states as unclaimed property, Mr. Calagna said.
The settlement is part of a three-year investigation involving more than 30 states that centers on accusations that insurers retained unclaimed life insurance payouts when they should have taken more direct steps to track down beneficiaries, like matching Social Security death records with their own databases of policyholders.
“If they’re holding it, they’re earning a profit on that money, because they’re investing it,” said Jack Stollsteimer, director of Pennsylvania’s Bureau of Unclaimed Property. “Whether it was illegal or not, it was certainly dishonorable. The people who bought these policies bought them because they trusted MetLife to pay their beneficiaries when they died.”
Two other large insurers, Prudential and John Hancock, a unit of Manulife Financial, have already reached similar agreements with state insurance regulators who are working as a group. State officials said the amount of money to be paid out by the three companies was expected to exceed $1 billion but would be paid out over a number of years.
New York State has been pursuing unpaid life policies independent of other states. Separately on Monday, state officials said they had retrieved $262 million from 172 life insurers, including MetLife, and sent it to the beneficiaries, who had generally not known which carrier issued their relatives’ policies, or even been aware that a policy existed at all.
New York’s figure includes payments to more than 32,000 people nationwide. New York officials did not report how much of the total $262 million came from MetLife.
“The department gets frequent calls from people who say, ‘I know my parents were insured, but I can’t locate the policy and I don’t know which insurance company issued the policy,’ ” said Benjamin M. Lawsky, the superintendent of the New York State Department of Financial Services, which regulates insurance and banking. “There is simply no reason why insurance companies shouldn’t be scrubbing their policy lists,” looking for matches with the Social Security Administration’s master death index.
“Running these computer matches isn’t much of a burden, and the benefits to consumers are significant,” Mr. Lawsky said.
Contractual language in the life policies says the survivor, or a representative, must file a claim to receive the payment. State insurance regulators said MetLife and the other companies made the case that they had not broken any laws by failing to seek out the survivors, but could have done more than they did.
They stressed that insurers had generally checked the Social Security death index regularly to see whether other customers, who bought annuities, had died. In that case, the insurers stopped sending payments.
“It is expected that millions of dollars more per year will be put into the hands of beneficiaries that otherwise would have remained in MetLife’s coffers,” Dave Jones, California’s insurance commissioner, said in a statement Monday.
Mr. Calagna said that all of the policies at issue in the multistate settlement were a special type, called industrial life insurance, which was usually sold door-to-door in the early years of the last century. The salesmen went back over their routes every month to collect premiums. The face value of the policies was small in today’s dollars, he said, no more than $1,000. MetLife stopped selling that type of insurance entirely in 1964.
In 1982, Mr. Calagna said, MetLife declared all of its industrial life policies to be fully paid up, and stopped collecting any more premiums. He said that was why MetLife had lost contact with so many of those policyholders. He said the company had tried, as early as the 1980s, to get back in touch with the policyholders, but many had moved and could not be found.
Because many of the people who bought industrial life policies did so before the Social Security program was created, in 1935, no Social Security number was ever written on their policy and the master death index was not a good place to find out whether any of them had died. Mr. Calagna said that in the last few years, MetLife had been trying to cross-check the master death index with that block of policies once a year. The settlement calls for it to make those cross-checks once a month.
In the past, MetLife used an assumption that the policyholders had died by the time they turned 99. But the new settlement requires it to assume people have died by the time they turn 90, and start looking for the policyholders or their survivors. If MetLife finds policyholders who have lived past the age of 90, it will offer them the cash value of the policy immediately. If it cannot find any heirs, it will send the money to the state where the policyholder lived as unclaimed property.