Jessica M. Karmasek Jul. 30, 2010, 2:16pm
NEW YORK (Legal Newsline) - New York Attorney General Andrew Cuomo has subpoenaed six additional insurers as the State continues its probe into whether life insurance companies have defrauded families of deceased military members.
"It is shocking and plain wrong for these multinational life insurance companies to pocket hundreds of millions in profits that really belong to those who have lost family members," Cuomo said in a statement Thursday.
Genworth Financial, Inc., Guardian Life of America, AXA SA's MONY Life Insurance Co., New York Life Insurance Co., Northwestern Mutual Life Insurance Co. and Unum Group received the subpoenas, Cuomo spokesman Richard Bamberger said Friday.
Cuomo, who is running for the Democratic nomination for governor of New York, has now subpoenaed at least eight companies. On Thursday, his office said it issued subpoenas to MetLife, Inc., and Prudential Financial, Inc.
The attorney general is looking into whether life insurers are defrauding families of deceased military personnel by funneling millions of dollars worth of death benefits to themselves.
At issue is whether the insurers, rather than pay out lump sums upon the deaths of the policyholders, instead are keeping money in potentially risky accounts they control, and paying low yields to the survivors.
"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," Cuomo said.
"Specifically, the insurers place the cash belonging to these families in the insurers' corporate accounts, reportedly earning the companies upwards of 4.8 percent. The insurers then pay families as little as 0.5 percent interest -- less than half the rate available at some FDIC insured banks."
However, the practice is common, but not universal, in the life insurance industry, according to the Wall Street Journal.
By keeping the money, insurers are able to earn a higher return on the funds than they pay out in interest.
The accounts, according to the Journal, have been around for at least two decades, and state insurance regulators -- who monitor and regulate the practice -- say they can serve as a useful option for consumers not yet ready to make immediate financial decisions.
Contact writer Jessica Karmasek at email@example.com.