Attorney General Cuomo Launches Investigation Of Life Insurance Industry For Defrauding Military Families And Others Of Millions In Cash Payouts

NEW YORK, NY (July 29, 2010) - Attorney General Andrew M. Cuomo today announced his office has launched a major fraud investigation into the life insurance industry for practices that appear to have denied grieving military families and others of millions in life-insurance cash.

Cuomo served subpoenas on Prudential Financial, Inc. and MetLife, Inc. that provide life insurance policies to members of the military as well as nonmilitary federal employees. Cuomo’s investigation has already begun to closely scrutinize how military families and others were misled into putting benefits into insurer-controlled, low yield, potentially risky accounts which reaped millions of secret profits for the insurers.

“It is shocking and plain wrong for these multi-national life insurance companies to pocket hundreds of millions in profits that really belong to those who have lost family members and have already suffered immensely,” said Attorney General Cuomo. “To make matters worse, the insurance industry appears to be hoarding millions that belong to military families whose loved ones have made the ultimate sacrifice for our country.”

Specifically, at this stage of the investigation, it appears that rather than receiving an automatic lump-sum payout from Prudential or MetLife upon the death of the policyholder, grieving families are told that the payout will be placed in an interest-bearing account. These accounts, known as “retained-asset accounts,” are controlled by the insurers and referred to respectively as the “Alliance Account” and the “Total Control Account.”

It appears that the substantial interest earned on these accounts mostly benefit and enrich the insurers at the expense of the families to whom the money really belongs. And, beneficiaries are not adequately informed by the insurers of the details of these accounts including the fact that the insurers are making huge profits at the expense of the grieving family.

Specifically, the insurers place the cash belonging to these families in the insurers’ corporate accounts, reportedly earning the companies upwards of 4.8%. The insurers then pay families as little as 0.5% interest, less than half the rate available at some FDIC insured banks. In short, beneficiaries are unaware that the insurers are reaping enormous, secret profits on these accounts, while the families are losing out on significant potential earnings.

Furthermore, because insurers do not put the cash owed to families in banks insured by the FDIC, but instead in the insurer's corporate account, these assets may not be safe, are not protected by FDIC rules, and may be subject to the insurer’s creditors.

Prudential beneficiaries also receive what appears to be a "checkbook," with "checks" bearing the name of JPMorgan Chase & Co. Prudential beneficiaries are not informed by Prudential that these so-called "checks" may not be able to be used to make purchases and are not bank checks at all. Instead, Prudential must send money to JPMorgan Chase before the checks can clear. Prudential beneficiaries are also not informed that under a 2008 law, they have one year to place the death benefits in a Roth IRA and earn tax-free investment gains for the rest of their lives. Thus, real financial harm is suffered by Prudential's lack of disclosure.

The subpoenas Cuomo has issued are broad-ranging and demand comprehensive data from the companies, including but not limited to the production of information relating to how and when beneficiaries are informed of the terms and conditions relating to the retained-asset accounts, as well as data relating to the difference between interest earned by the insurance companies and interest earned by the beneficiaries.

Cuomo has also begun a comprehensive review of the life insurance industry and its practices to determine the extent to which other companies are engaged in these or any other similar fraudulent practices. It appears at this stage of the investigation that some of these practices may be widespread in the industry.

The investigation, led by Consumer Frauds & Protection Bureau Chief Joy Feigenbaum, is being handled by Assistant Attorney General Laura J. Levine, under the direction of Executive Deputy Attorney General for Economic Justice Maria Vullo and Deputy Attorney General for Economic Justice Michael Berlin.