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State Regulators Put MetLife in the Hot Seat Over Death-Benefit Approach

Source: WSJ - Leslie Scism

Posted on 20 May 2011

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State regulators turned up the heat against MetLife Inc. on Thursday, saying the insurance company used a database that tracked deaths when doing so proved beneficial for one side of the company, but for years didn't use the same database when doing so could have meant more payouts to families of its life-insurance clients who died.

At issue are practices that had the appearance of selective use of the Social Security death database. MetLife and other insurers have maintained they are behaving lawfully. Under policy contracts, insurers aren't required to take steps to determine if a policyholder is still alive, but instead pay claims upon proper notification from beneficiaries or others.

The issue of overdue payouts on life-insurance policies, now the subject of a multistate investigation, surfaced in April when California and other states said they were looking at whether insurers were tardy in turning over unclaimed financial assets to states.

At Thursday's hearing hosted by Florida's insurance department, senior MetLife executives testified that the company began regularly using the Social Security database to cut off payments to customers under annuities contracts soon after the database became available in the 1980s, and has used it on a monthly basis since the 1990s. Annuities are retirement-income products.

Only in 2007 did MetLife move to match its huge life-insurance policyholder base against names in the database. The company attributed the delay largely to its satisfaction that the vast majority of death-benefit claims were being paid through the longstanding practice of beneficiaries filing a claim, as well as some practical obstacles that existed on the life-insurance side but not on the annuity side.

In later testimony, executives from Nationwide Financial Services Inc. said they had begun using the database in 2003-04 in the company's annuity business and applied it to the life-insurance side last year, as executives on that side of the business realized its value.

MetLife's 2007 initiative identified roughly 18,000 deceased policyholders for whom a total of about $83 million was due to heirs, some for deaths as far back as 1978, the insurer said. MetLife noted that over the period covered by the 2007 project, it had paid out $44 billion to beneficiaries who themselves filed claims, as per standard practice.

While the number of those for whom the customary system failed was relatively small, Executive Vice President Todd Katz said the initiative helped MetLife conclude that it should annually use the database as a "safety net" for instances when beneficiaries aren't aware they are due money and don't report a claim. That annual safety-net approach kicked in this year.

Still, regulators indicated they weren't satisfied with what they saw as indifference toward this small slice of customers, in part because they may be families with smaller policies who don't have lawyers or financial advisers keeping track of money matters.
MetLife's data show that, on average, delayed benefits identified through the 2007 initiative averaged a relatively modest $5,000 apiece.

"The company systematically used the Social Security" database in the late 1980s and early 1990s when it was in its financial interest, but "you first used it on an ad hoc basis for life insurance in the early 2000s," Florida Insurance Commissioner Kevin McCarty said.

"That's a little offensive to people [that] when it is a matter of paying someone a death benefit, the use is later and not as consistent," added Belinda Miller, acting general counsel for Florida's office of insurance regulation.

Regulators also pointed out that insurers generally will pay out on a death claim only if they have a death certificate in hand, but on the other side of their business, they stop checks going out as soon as they get a match on the Social Security database that a customer apparently has died. At that point, MetLife said, it sends a letter to the customer's residence to determine if the death has indeed occurred, and if the information is bad, it will restore any previously canceled payments.

MetLife executives said the company was following procedures that are well established in policy contracts, and noted that if the company did send retirement-income checks to families of deceased annuity owners, it in some instances may have to collect such payments afterward.

In general, the MetLife executives cautioned regulators against overhauling a system that meets the needs of the vast majority of consumers, namely beneficiaries filing claims. The Social Security database "provides a valuable tool as a safety net for the limited number of individuals who don't submit the claim. We think it is a good business practice to use it in that way, but not to change the process that has worked" for the vast majority of beneficiaries, Mr. Katz said.

MetLife's description of its 2007 initiative provided some of the first solid numbers on what regulators say is a problem that has existed for decades and now may be solvable, thanks to advances in technology that have made digital databases more complete and relatively easy to use.

Florida's Mr. McCarty said in an interview after the hearing that regulators aim to compile best practices for the nation's 40 biggest life-insurance and annuity sellers regarding the database, including using it to determine if any beneficiaries are due money under policies previously canceled for nonpayment of premiums.

"If they have spent a lot of time and energy over the years to solicit consumers' business, then we expect them to use that same time and energy to ensure beneficiaries are found and paid," he said.

In explaining why it hadn't earlier adopted use of the database on the life-insurance side, MetLife noted that there were challenges to applying the Social Security database to its insurance business, where Social Security numbers generally weren't collected decades ago, making matches much less reliable. Insurers tend to have up-to-date records of Social Security numbers for annuity buyers, for tax reasons.

Florida heads a multistate task force at the National Association of Insurance Commissioners, an organization of top state regulators, investigating insurers' life-insurance and annuity claims practices. The task force is seeking to coordinate the activities of state insurance regulators in pursuing probes and settlements.

Other states on the task force include California, Iowa, Louisiana, North Dakota, New Jersey, New Hampshire, Pennsylvania and West Virginia. California will hold a separate hearing May 23, which MetLife executives are expected to attend.

The issue previously surfaced in the late 1990s and early 2000s as Hancock and MetLife, among others, filed plans with regulators to transform from "mutuals" owned by their policyholders to publicly traded companies, similar complaints were lodged.

Those conversions involved compensating owners of certain types of policies, with cash or stock. These included people who had bought $100 to $1,000 policies decades earlier, and agents for years walked door to door to collect premiums. Insurers lost contact with many when in the 1980s they declared the small policies fully paid and quit sending agents on collection rounds, industry executives and regulators say.