In what marks the latest development in a nationwide probe into life insurance business practices, the Florida Office of Insurance Regulation said it is one of 23 states to have reached a settlement with John Hancock Life Insurance Co. over the company's beneficiary payment practices. As part of the $3 million settlement, John Hancock has agreed to pay millions in restitution, to revise its business practices related to unclaimed property for life insurance products, and to revise its use of the U.S. Social Security Administration's Death Master File.
Florida's announcement comes as part of a multistate investigation into whether life insurers are using the Death Master File, which lists the names of every deceased American citizen, to stop annuity payments but aren't using it to pay the beneficiaries of life insurance settlements. It also comes one day before a hearing in Florida that will require two large life insurers to explain to regulators how they handle beneficiary payments.
So far, 35 states have launched investigations into the issue, including California and Connecticut. Late last month, California announced it had reached a similar settlement with John Hancock (BestWire, April 26, 2011).
According to Florida's OIR, John Hancock's alleged selective use of the Death Master File resulted in hundreds of thousands of dollars in lost payments to beneficiaries. The state's investigation determined there are instances in which a policyholder died and years later, John Hancock had not paid the rightful beneficiary or remitted the benefits to unclaimed property. The investigation also found that in some cases, John Hancock allegedly knew about policyholder deaths but continued to draw-down premium costs from their accounts until the cash reserves were diminished entirely.
"Unfortunately, this appears to be a pervasive industry practice," said Insurance Commissioner Kevin McCarty. "The office appreciates that John Hancock stepped-up and agreed to change its processes before any other company. The agreement with John Hancock will send a strong signal to other companies to audit and modify their practices."
Under the terms of the settlement, John Hancock's $3 million settlement payment will go to the OIR, the Office of Attorney General Pam Bondi and the Office of Chief Financial Officer Jeff Atwater's Department of Financial Services. Regulators agreed to waive $600,000 of the settlement because of the company's cooperation.
The settlement requires John Hancock to repay beneficiaries the amount of funds that were improperly withheld, including interest accumulated since the date of death of the policy holder. If a beneficiary cannot be identified, the amount due will be reported to the Unclaimed Property Division of the DFS.
John Hancock must also establish a $10 million fund to facilitate payments to beneficiaries that cannot be contacted and provide quarterly reports for the next three years, updating regulators on how the settlement is being implemented.
John Hancock has denied any wrongdoing. "This agreement is consistent with John Hancock's longstanding commitment to keeping our promises to owners and beneficiaries of our products," the company said in a statement. The company said Florida regulators worked hard with it to "forge a set of new standards that John Hancock will extend beyond Florida's borders and that will benefit our customers in all states."
While John Hancock is the first large life insurance carrier to have settled with regulators over its payment practices, other large insurers are drawing regulatory scrutiny for their beneficiary payment practices.
California and Florida, have begun slapping major life insurers with subpoenas, ordering the companies to appear before regulators to explain their payment practices. Florida issued a subpoena to Nationwide Life Insurance Co. and MetLife requiring a company representative to attend a May 19 hearing. That hearing will be attended by regulators from Alabama, Georgia, Iowa, Illinois, Louisiana, Maryland, Minnesota, Missouri, New Jersey, Oklahoma, and Virginia.
MetLife was also hit with subpoenas from the California State Controller's Office and the California Department of Insurance (BestWire, April 26, 2011). The California hearing is scheduled for May 23.
Tom Leonardi, Connecticut's commissioner, announced his state is launching an investigation into death benefits as well.
Regulators anticipate John Hancock and other companies will ultimately pay tens of millions of dollars to tens of thousands of beneficiaries nationwide as a result of these examinations.
McCarty, who is serving as chairman of a National Association of Insurance Commissioners task force focused on the issue, has said the NAIC is making this an "industrywide examination. If a company has knowledge of a death, they have an obligation to investigate what its impact will be on benefits." The individual investigations being conducted in the states are being coordinated by the NAIC.
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