Over the past few years, the ING, MetLife, John Hancock and Prudential insurance companies have encouraged recipients of death benefits to put all of the money in a retained asset accounts. This account is then held by the insurance company as the death benefit recipient gradually withdraws portions of the fund. Insurance companies prefer this option because it enables the insurer to reinvest and reuse the fund while it is still held within the retained asset account.
The Dilemma
The biggest issue with using a retained asset account is that the death benefit recipient is not informed about their ability to take a lump sum. Instead of a lump sum being the default payment method, the four insurance companies have selected a retained asset account as the default method. To switch payment methods, the recipient has to complete a number of complicated forms before the insurer will consider the switch.
Fining the Insurers
ING, John Hancock, Prudential and MetLife were all investigated by the Department of Commerce for their underhanded payout practices. After the investigation was complete, each company was order to pay a fine of $200,000. In addition, the four insurance companies must change the default payment to a lump sum for any insurance claims.
Effects on Minnesotans
In the last few years, the Department of Commerce estimates that thousands of Minnesotans have been negatively impacted by the insurance company’s retained asset accounts. Some of the insurance companies have even been using this questionable practice for decades. Although this has harmed many people within the state, the four companies will not have to compensate any victims for their losses. Instead, the insurance companies must pay a fine and change their payout method. They must simply submit to the penalties imposed on them without having to admit wrongdoing.
Discovering the Issue
It took investigators several years to figure out that something was going on with the insurance companies’ payouts. After looking at some of the claim reports, state investigators began to investigate more into the matter. The claim forms were written in a difficult to comprehend manner and were unusually complex. When questioned, some recipients of death benefits did not even know that a lump sum payment was an option.
It is estimated that MetLife, ING, Prudential and John Hancock hold a total of $19 billion in retained asset accounts. These accounts are held by a total of 680,000 individuals around the United States. Although the number of Minnesotan accounts was unreported, officials guess that the number is in the thousands.
Continued Legal Battles
Last year, MetLife and Prudential were both sued for underhanded practices. The two companies neglected to pay death benefits to several hundred people because no one stepped forward to claim the insurance money.
The issue of death benefit payouts has been increasingly scrutinized in the news lately. In New York State, insurers are now legally required to pay out death benefits immediately. This law effectively denies the insurance company from using any form of retained asset account for recipients. The use of retained asset accounts has also been covered in the news since an investigation by Bloomberg in 2010. At the time, insurance companies were reaping huge profits by tricking the families of fallen soldiers into using a retained asset account.
Ideally, the recent sanction in Minnesota will encourage insurance companies across the United States to adopt more consumer-friendly practices. With continued intervention by watch dog groups, the problem of retained asset accounts may draw to a close in the coming years.
SourcesL
http://minnesota.publicradio.org/display/web/2012/08/18/regional/insurance-sanctions/
http://www.dl-online.com/event/article/id/69539/group/Opinion/
http://www.startribune.com/business/166460676.html?refer=y
About the author
This article was written by Karl Stockton for the team at Kanetix. Check out their snowbirds travel insurance.
JRO
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