Why Decades-Old Life-Insurance Benefits May Still Go Unpaid
Smaller insurers balk at searching databases to check if policyholders have died; ‘It wasn’t priced in’
Kyle Haskins recently learned of a $74,000 payout from an insurance policy he didn’t know his grandmother had. Smaller firms are balking at the database searches that can turn up cases like his. PHOTO: AARON M CONWAY FOR THE WALL STREET JOURNAL
Some life insurers are fighting back against state officials who insist it is the companies’ job to check for dead customers.
The battle, led by small and midsize insurers, is reviving a touchy debate: When a policyholder dies, is it up to the insurance company or the beneficiary to make sure the benefit gets paid?
Historically, the burden has been on beneficiaries to file a claim after a death. Although that is still the typical way death benefits get paid, state authorities in the late 2000s began to compel insurers to turn over policyholder rosters so they could be checked against death databases.
Most large insurers agreed to the audits even though they believed the law didn’t require such extensive efforts. They decided that it wasn’t worth the reputational risk to fight the matter, and that new computer software made the change a logical one. Many were, in fact, already using similar checks to identify dead annuity owners in order to discontinue these customers’ payments.
So far the U.S.’s 22 biggest life insurers by premiums—including MetLife Inc., Prudential Financial Inc., New York Life Insurance Co.—have paid out more than $7.4 billion on old policies, either directly to beneficiaries, or to state unclaimed-property departments. The 22 insurers have agreed to regularly check a death database and conduct thorough searches to track down beneficiaries, according to officials in Florida, one of the lead states on the issue.
Now, authorities are encountering resistance as they try to get lesser-known outfits to do the same.
These insurers maintain that the long-standing system of expecting beneficiaries to file claims works well for nearly all deaths. They are also driven by economics—many of these insurers historically have sold small policies, not the million-dollar ones common at some large insurers, so they have less premium money flowing in to cover the costs that they say accompany the audits.
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- Life Insurers Skimp on Payouts: States (April 28, 2011)
- Insurers Pressed on Lost Policies (Aug. 13, 2012)
- Are You Owed an Insurance Payout? How to Check (Feb. 22, 2013)
Kemper Corp., a Chicago-based insurer with a market capitalization of $1.4 billion, has been involved in legal fights in at least a half-dozen states and hired lobbyists to make its case in some others.
“For more than a century, Kemper has paid all valid life-insurance claims in accordance with our policy terms and all state regulations,” the company said in a statement. “We believe it is illegal and improper for officials” to effectively demand retroactive changes to contractual terms. Kemper says about half of the roughly 20 states so far with new laws on insurers’ use of database searches limit the requirements largely to new policies. The other states apply the rules to existing policies.
The smaller companies’ opposition is emerging at a time when life insurers’ profits are being squeezed by low interest rates and increased competition.
The economics of searches are different between large and small insurers, particularly those such as Kemper that historically have focused on households of modest incomes. The average policy on Kemper’s books, for instance, has a death benefit of about $5,200, for which the consumer pays about $216 annually in premium.
Kemper, like some other smaller insurers, didn’t start asking customers for Social Security numbers until the 1980s, and for many years didn’t require exact birth dates, instead merely noting the buyer’s age at the time of sale. That makes it difficult to get reliable results in a database search, meaning insurers have to sift through paper records to fill in the gaps of identifying information. The costs, they say, quickly eat into profit generated by the small premiums, although state officials maintain those costs aren’t substantial.
“It wasn’t priced into the policies,” said Kimberly Moore, a vice president with N.C. Mutual Life Insurance Co., in Durham, N.C. She said the company still has policies on its books from decades ago with payouts in the hundreds of dollars.
Last year, N.C. Mutual successfully lobbied against a provision in a new state law that would have required life insurers to run all policyholders’ names through a death database. Kemper lobbied as well.
Ms. Moore said N.C. Mutual searches extensively for a policyholder and beneficiaries when the insured reaches a policy’s “maturity” age, typically age 100. “We feel we do a good job of finding people,” she said.
Many state officials see the issue as one of the most important they have tackled for consumers.
“I’ve talked to lots of people and I haven’t had more passionate and angry conversations than when they hear that insurance companies aren’t paying out benefits,“ said Illinois Treasurer Michael Frerichs. Kemper sued the Illinois State Treasurer in October to limit the scope of the state’s audit.
“At the end of the day, no one sits down and signs a life-insurance policy saying it may or may not be paid,” Mr. Frerichs said. “They don’t read the fine print.”
Florida’s chief financial officer, Jeff Atwater, called concerns about costs “a hollow argument,” saying none of the life insurers are small enough to qualify as “moms and pops.” Also, he contends, insurers are reluctant to allow audits because holding on to overdue benefits enables them to keep and invest the money longer.
Industry officials don’t dispute that overdue benefits have built up over time. But trade group American Council of Life Insurers says the problematic policies are a tiny percentage of the $1 trillion that was paid the conventional way over the past 20 years.
A growing number of consumers are applauding states’ efforts.
Kyle Haskins, a junior at Xavier University in Cincinnati, recently learned from Florida’s unclaimed-property department that MetLife had turned over about $74,000 in proceeds from a policy that his grandmother, who died about 15 years ago, had bought when she was a special-education teacher in Ohio.
“It is kind of shocking they have billions of dollars that haven’t been paid out in life-insurance policies,” he said of the industry. “I’m not upset or mad: I understand that’s how business works.”
MetLife said it couldn’t comment on any specific case for privacy reasons, but that it is “thrilled that Mr. Haskins has received the life-insurance proceeds he was due.”
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