Life insurance giant MetLife Inc. will shell out roughly $500 million in a multistate settlement of its alleged failure to pay death benefits to heirs, regulators said.
MetLife, however, said it will pay out about $438 million over the next 17 years, with $188 million going to beneficiaries this year. Insurance regulators from dozens of states had accused the company and others of delaying or withholding life insurance payments to many of its policyholders.
About $40 million of the total is likely to end up in California, said State Controller John Chiang, who waged a multiyear audit of life insurance companies' operations. The funds will either be sent on to beneficiaries of deceased MetLife policyholders or stored in state coffers as unclaimed property.
More than 30,000 California-based MetLife policies are affected, each with an average cash value of $1,200, Chiang said in a statement. MetLife will also cover states' costs of finding beneficiaries and sending them the benefits overdue to them.
The agreement will "make it clear that if the industry isn't willing to make the payments legally required, we will take action, including lawsuits, to compel them to do right by their customers," Chiang said.
MetLife failed to thoroughly use the Social Security Administration's database of deceased individuals, known as the Death Master File, according to a joint investigative hearing held by Chiang and California Insurance Commissioner Dave Jones in May. In a coordinated effort, several other states held similar hearings.
Regulators concluded that when MetLife was aware of policyholders who died, it often didn't make payments to beneficiaries. And in many cases when benefits went unclaimed after several years, Chiang's office said MetLife did not forward the funds to the state controller's office as required by law.
Several other life insurance companies used similar practices, possibly to boost profits, regulators said. MetLife executives have denied dragging their feet on paying out benefits.
In a statement Monday the company said it will institute several reforms.
"MetLife agrees that periodic matching of administrative records against available external sources such as the Social Security Death Master File is a best practice and the company is implementing a monthly matching process," the company said.
MetLife further promised to conduct a thorough search for beneficiaries while also attempting to reconnect with policyholders over age 90. It also said it launched a website to help customers find their policies.
The company said it paid out about $12 billion in life insurance claims last year, with 99% of claims submitted by beneficiaries. Policyholder deaths that don't involve a claim are a "small proportion" of the total, MetLife said.
Last year, Chiang struck similar settlements with John Hancock Life Insurance Co. and Prudential Financial Inc. Those settlements, as well as Monday's, include states such as Illinois, Florida, New Hampshire, North Dakota and Pennsylvania.