Knowing what we know about the reasons for the financial crisis of 2008, and our continuing economic struggles, it has become more difficult to trust the institutions that we must rely on.  Not that it was easy before.  There’s a lot of blame to be passed around.  Government agencies get a lot of well-deserved blame.  But Wall Street, the banks and insurance companies let us down as well.  Too many times, they put their interests ahead of their clients’.

Most of the blame assigned to the financial institutions focused around names like CountryWide, Lehman Brothers, Goldman Sachs, et al.  Many of their business practices, while maybe technically legal, reek of self-interest and are not the ways to earn client trust.  We all need a variety of financial products through our lifetimes, and we rely on our financial institutions to provide us with access to the financial marketplace.  We would like to think that we can deal honestly with the companies that we decide to do business with.  But unfortunately, many of our large institutions take advantage of their position in the marketplace to take advantage of their customers. 

A story out this week about an investigation into the insurance industry is another example of how it is not an even playing field.  Kevin McCarty, Florida’s Insurance Commissioner, hosted a hearing last week as part of a 35-state investigation into 21 insurance companies.  The states are investigating whether the insurance companies are violating state unclaimed property laws. 

The issue surrounds how the insurers are using the Social Security Administration death master list.  Sounds creepy, doesn’t it?  You see, the insurers were using the list so they would know when to stop making annuity payments when one of their customers passes away.  Annuity payments, like a pension, are usually paid until the death of the annuity holder. So, this seems like a reasonable business practice.  The insurer shouldn’t make payments they are no longer obligated to make.

But what about the payments they are obligated to make to their clients with a life insurance policy?  Often, an insured will pass away and the family either didn’t know about, or forgot about an old policy.  If beneficiaries don’t submit a claim for life insurance benefits, the insurer gets to keep the money, for awhile.  The laws say that those funds must be turned over to the state’s unclaimed property fund after 3-5 years, depending on the state.  Regulators claim that the insurance companies have been using the list to know when to stop making payments to annuitants, but didn’t use the same list to find policyholder beneficiaries who are due policy benefits.  But whether laws were broken or not, it just smells bad. 

Some progress is being made.  The Florida hearing last week followed the announcement, a day before, that John Hancock had reached a settlement with the state for $3 million over the issue.  And, in 2007, MetLife, after not using the list for death benefits for 20 years, finally matched the list to their policies.  The insurer ended up transferring $51 million to various states’ unclaimed property funds, $32 million to their unclaimed fund system, and another $325 million is awaiting transfer to state authorities. 

It bothers me that the focus is on getting the funds into the states’ hands and I hope that more effort is made to find the rightful beneficiaries.  The investigation is causing some light to be shined on the issue, so things are slowly changing.  It’s just sad that we can’t count on our financial institutions to do the right thing.  They should stop making annuity payments when someone passes, but also let’s cross-check to see if any families are due benefits.  If nothing else, it’s a good reason for us to check the state database to see if we are due funds that have been lost over the years.  You can check Florida’s database here, http://www.fltreasurehunt.org/index.jsp .  By the way, Florida’s Unclaimed Funds alone total more than $1 billion!

Florida’s McCarty, the Insurance Commissioner, said that regulators aim to create “best practices” for the insurance industry.  As a rule, I am not in favor of increased government regulation.  If people and companies did the right thing more often, maybe we wouldn’t need as much.