In a most significant happening recently, New York’s Attorney General subpoenaed MetLife Inc. and Prudential Financial Inc. as part of a probe into whether life insurers are defrauding families of deceased military personnel. The investigation is looking into the companies’ siphoning off millions of dollars of death benefits for themselves. Attorney General Andrew Cuomo, had this to say in a statement:
It is shocking and plain wrong for these multinational life insurance companies to pocket hundreds of millions in profits that really belong to those who have lost family members and have already suffered immensely.
These subpoenas of the largest U.S. life insurers came one day after the U.S. Department of Veterans Affairs said in a published report that it had begun its own investigation into the issue. Prudential has confirmed that it is in talks with the Department. At issue is whether the insurers, rather than paying out lump sums to military families upon the deaths of policyholders, instead would keep money in potentially risky accounts they controlled, known as “retained-asset accounts.” Low yields on these accounts would be paid to surviving families. That certainly seems like a bad practice and one that badly hurts the intended beneficiaries but benefits the companies.
The insurers reportedly earned upward of 4.8% annually on these accounts, but paid families interest as low as 0.5%. That would be less than the rates the families could have received from their local banks. To make matters worse, the insurers’ accounts are not guaranteed by the Federal Deposit Insurance Corp.
The subpoenas seek data on how and when beneficiaries learn about the terms and conditions of retained-asset accounts. Also sought is data on the differences between interest earned by insurers and beneficiaries. In a statement issued to the media, the American Council of Life Insurers, a trade group, said retained-asset accounts “help grieving military families.” Based on what our firm has learned, I seriously doubt that any family was helped by what the insurance companies did.
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