Life insurers are feeling the heat as their death benefit investment practices fall under increased, wider scrutiny.
Representative Debbie Halvorson (D-Ill.) introduced legislation that would impose new requirements on life insurance companies that hold onto money from death benefits to families of U.S. soldiers and veterans, reports Bloomberg.
The first-term Illinois Democrat, 52, is the step-mother of an Army Special Forces soldier injured in Afghanistan. Bob Filner, House Veterans Affairs Committee Chairman and a California Democrat, is co- sponsor of the legislation.
The proposed rule would require companies to disclose how benefits have been invested, and to counsel survivors on the advantages and disadvantages of how benefit investments affect stakeholders.
Bloomberg Markets magazine reported on July 28 that life insurance companies keep money in their own accounts, instead of paying a lump sum to survivors when a policy holder dies, pay uncompetitive interest rates and offer misleading guarantees about the safety of funds that aren't federally insured.
"To read stories about big insurance companies profiteering at the expense of the parents or spouse of a fallen soldier is outrageous," Halvorson said in a statement.
Introduced on July 30 with the stated goal that insurance companies "are being responsive to military families," Halvorson’s bill requires the U.S. Department of Veterans Affairs to enforce the new rules and requires the agency to issue an annual report to Congress.
Although not named in the press release, Prudential, the second-largest U.S. life insurer, is the sole provider of life insurance coverage to 6 million U.S. military personnel and veterans, reports Bloomberg. Prudential spokesman Bob DeFillippo said the insurer, based in Newark, N.J., is "working with the VA to address concerns raised about the program."
While saying it is "premature to comment on this legislation," DeFillippo said "I must stress that we already provide financial counseling through a third party at no cost to the beneficiaries."
The National Association of Insurance Commissioners (NAIC) stated Thursday that it plans to re-examine rules that apply to life insurers’ disclosure to policyholders about retained-asset accounts.
The Veterans Affairs department is also investigating the practice, and Defense Secretary Robert Gates pledged on July 29 that the Pentagon will help the agency complete its probe.
New York Attorney General Andrew Cuomo last week also announced an investigation of the practice, which allegedly has allowed more than 100 carriers to retain and earn investment income on $28 billion owed to life insurance beneficiaries.
Cuomo's office confirms that it subpoenaed at least eight insurers, including Prudential and New York-based MetLife Inc., the biggest U.S. life insurer. The New York State Insurance Department also plans to review the legality of the practice.
Families are often told that a relative's death benefit is being placed in a secure, interest-bearing account, and they are given what the company calls a "checkbook" to spend the money when they want, Bloomberg Markets reported.
Today, Bloomberg reported that New York Attorney General Andrew Cuomo subpoenaed Genworth Financial Inc., Unum Group and an insurer acquired by France's AXA S.A. as the state widens a life insurance fraud probe.
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