Insurers See Only What They Want To See

When insurance companies look to do what is right, they look though a 1-way mirror. This comes as no surprise to those of us who have to fight with insurance companies every day to get them to do what is right for our clients.

What brings on this observation is the ongoing investigation by 35 states of “unclaimed” life insurance policy death benefits which seem to disappear into company books, never to reappear again.

The “right” part of the statement has to do with annuities, which the companies have contracted to pay their customers (in return for good money, of course). Most of these annuity contracts call for the annuity payments to end when the annuitant dies. Many times, the annuitant dies and the insurer receives no notice, thereby increasing the danger that the company will continue to send annuity checks to a deceased.

But, never fear. There is a Master List of Deaths maintained by the Social Security system which is also very interested in learning when one of its benefit recipients dies. The data in this list is kept current and is available to anyone interested for a fee.

We have no argument with the insurance companies protecting themselves by following the Master Death list closely and updating their annuity files so as not to pay benefits to those who have expired.

The problem is that these same insurance companies don’t use the Death Master List to notify life insurance beneficiaries of policyholders who have died leaving paid policies for relatives and others who are unaware of the policies.

The result of this failure is that the life insurance benefit may never be paid if the beneficiaries didn’t know they were named in the policy. Further, most states have an escheat law which commands that in any situation where life insurance proceeds are unclaimed for a certain period of time, they escheat to the state.

If the insurer doesn’t know that the policyholder died and the policyholder is ill or so incapacitated that he or she can’t take care of business, the company can send out premium notices and then cancel the policy for nonpayment, thereby writing the potential liability off its books relatively quickly.

We have a feeling that the insurance companies under investigation will wind up paying hefty fines in a settlement to the investigating states, just as Unum did in 2004. See Unum. But, in actuality, they will be paying a lot more. It will be another instance of insurance companies playing fast and loose with their policyholders and making every effort to add dollars to their bottom line.

This is why we shudder when we hear legislators trying to tell people that Social Security should be shifted to a private insurance system. The record of the private insurance industry in dealing with their policyholders does not give us much confidence that such an adversarial system, with profit as the main underlying motive, will deliver for Americans the social network they have come to expect from Social Security since 1934.

We know that the system needs tightening up economically – but, not destruction at the hands of private insurers. There are many ways in which more revenue can be earned while benefits are reduced in a humane way, that will allow the system to continue for decades and decades to come.

With the way that insurance companies fight their policyholders to hold onto every dollar
they can, as most recently demonstrated by the ongoing Master Death List investigation,
the Unum probe and settlement, IME doctors, denial bonuses for their employees, why
would anyone in their right mind entrust the future of Social Security to private