AIG Insurance Co. will pay an estimated $25 to $30 million owed to California beneficiaries of life insurance policies, and an $11 million settlement payment.
California Controller John Chiang began auditing AIG’s insurance company practices in 2008, revealing an industry-wide practice of companies failing to pay death benefits to the beneficiaries of life insurance policies, despite having access to federal records indicating that policyholders had died, or direct confirmation from relatives of the deceased, according to a statement from Chiang and Insurance Commissioner Dave Jones.
Instead, some companies would continue collecting premium payments from the deceased by drawing down the policies’ cash reserves. Once the cash reserves were depleted, the company would cancel the policy, according to the statement.
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. Under the second multistate agreement with insurance regulators, AIG has agreed to business reforms that will ensure that it rapidly pays out life insurance, annuity, and retained asset account benefits. It has also agreed to pay a total of $11 million to the states participating in the settlement. California’s share is expected to be over $1 million.
“I want to acknowledge AIG’s cooperation in resolving this matter with insurance regulators,” Jones said in a statement. “This settlement is a victory for consumers. Importantly, this action represents another step in our unwavering commitment to reform industry practices and ends a process that denied payments to the beneficiaries of deceased policyholders.”
The settlement agreement with insurance regulators requires AIG to regularly to check the Social Security Administration’s Death Master File to determine whether any of its life insurance policyholders, owners of annuities, and holders of retained asset accounts have died. If AIG finds that a policyholder has died, the agreement requires it to conduct a thorough search for beneficiaries, using all contact information in its records and online search and locator tools. If beneficiaries cannot be located, AIG must turn the proceeds owed to beneficiaries over to the states as required by state unclaimed property laws.
Administered by the Controller, California’s unclaimed property program generally provides that businesses send financial property and accounts to the State after three years of inactivity.
The settlement with unclaimed property officials requires AIG and its subsidiaries to do the following:
- Restore the full value of impacted accounts;
- Comply with California’s unclaimed property laws and cooperate with the Controller’s efforts to reunite millions of dollars in death benefits and matured annuities and other policies with their owners or, in many cases, the owners’ heirs;
- Use the date of death as reflected in the Social Security Administration’s Death Master File to establish the start of the three-year unclaimed property dormancy period;
- Pay the State of California three percent compounded interest on the value of the held amounts from 1995, or from the date of the owner’s death, whichever is later, for failure to comply with unclaimed property laws.
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