American International Group, Inc. (AIG) is the latest big insurer to agree to a multi-state settlement over how life insurance death benefits are paid.
The company agreed to pay $11 million to states to cover investigation costs and to pay unclaimed money owed to life insurance policy beneficiaries. California regulators estimate AIG owes $25 million to $30 million to beneficiaries in that state alone.
The life insurance industry has come under increasing scrutiny in the last few years for how companies handle death benefits. State investigators say insurers routinely used federal records to identify annuity holders who had died, so the companies could cut off payments immediately. But they failed to use those records to identify life insurance policyholders who had died. In most cases, beneficiaries file claims when their loved ones die, but sometimes beneficiaries don't know they should file claims because they are unaware the policies exist.
Insurance companies that have settled with states have agreed to build systems to check federal death records regularly and search for beneficiaries of life insurance policyholders who have died. They must either pay the beneficiaries promptly or pay state unclaimed property departments.
The most recent agreement with AIG is the fourth agreement state regulators have reached with insurers since a national task force, led by Florida Insurance Commissioner Kevin McCarty, began investigating the industry's practices for paying death benefits. Prudential Insurance Co. of America, MetLife Insurance Co., and Nationwide Financial Services, Inc. signed similar agreements. In addition, John Hancock Life Insurance Co. reached similar agreements with other states before the task force was formed, and California recently announced a similar agreement with Forethought Group, Inc., which sells end-of-life policies through funeral planners.
California, Florida, Illinois, New Hampshire, North Dakota, and Pennsylvania are serving as lead states for the national task force examining the largest insurance companies. Texas joined the AIG investigation because some of the AIG companies are headquartered there.
Task force investigations of other national insurers are ongoing.