American International Group Monday became the fifth life insurer to settle with state insurance regulators regarding the handling of unclaimed property.
Under the agreement, AIG will pay an $11 million fine to be divided amongst the states that join the settlement.
AIG officials also said that they had added $55 million during the third quarter to an existing reserve of $200 million related to the audits for interest and expected acceleration of benefit payments under the settlement.
The agreement was with 10 life insurance companies collectively referred to as AIG, according to Kevin McCarty, Florida insurance commissioner and president of the NAIC.
This includes early payment of policy proceeds under certain older industrial life policies, AIG said.
The probe relates to the use of the Social Security Administration’s Death Master File to identify deaths of policyholder claims that have not been submitted to the company in the normal course of business.
John Hancock reached an agreement with Florida prior to the creation of the NAIC Task Force.
The task force, through outside audit firms, is probing the files of the largest 40 insurance groups, which comprise more than 92.4 percent of the market for life and annuity products nationwide.
And, a recent legal alert by lawyers at Sutherland, Asbill & Brennan now indicate the probe has been expanded to include medium and small insurers.
The states of Florida, California, Illinois, North Dakota, New Hampshire and Pennsylvania are serving as lead states for examinations of the largest insurance companies, although Texas joined the AIG investigation because it is the domiciliary state for some of the AIG companies, McCarty said.
Only California made an estimate as to how much it will gain from the AIG probe.
Under the agreement with unclaimed property officials, AIG will pay an estimated $25 million to $30 million on an estimated 10 million policies that are past due in California, its officials said.
California Comptroller John Chiang added in a statement that, “For decades, too many insurers have fleeced their policyholders.”
But, he said, “by vigorously enforcing California’s unclaimed property laws – on the books since 1959 – we are protecting consumers by pushing the insurance industry to fully honor their payment obligations.”
However, an industry lawyer familiar with the issue said that prior to the probe, beneficiaries were responsible for notifying insurance companies of a claim.
Earlier this month, Nationwide agreed to pay $7.2 million to the states in settlement of the states’ probe into its practices. The company said it has identified 4,747 unclaimed death benefits, and has already paid $144.1 million to beneficiaries.
In May 15, MetLife agreed to pay $40 million to the states in settlement of the audit of its practices. Estimates are that MetLife could pay up to $500 million over a long period of time to settle the probe because it issued a lot of small-value industrial life policies up to the mid-1960s, and many of these people did not come forward to receive cash in lieu of stock when MetLife converted from mutual to stock status in the late 1990s. One of the reasons for this is that Social Security numbers were not required to be used as identification when these policies were purchased.
Forty-three states have signed up to be involved in the MetLife settlement.
On Feb. 15, Prudential agreed to pay $17 million to the states; 28 states have signed on to that settlement.
California settled with John Hancock for an undisclosed amount in April 2011 in return for an agreement that John Hancock would use the SSDMF the same way for both living benefit annuity policies and for life insurance policies.
The probe was launched in 2008 by California to determine whether life insurance companies were using the same diligence in using the SSDMF to discover the deaths of people who held life insurance policies as it did for those with living benefits annuity policies, which pay monthly.
A month later, Florida and two other states reached a settlement with John Hancock in which John Hancock agreed to pay $2.4 million to the states and set aside $10 million to cover potential unclaimed property claims.
Several weeks after that settlement the NAIC set up the task force to examine the 40 largest life insurance groups.