State Controller John Chiang and Insurance Commissioner Dave Jones announced two multi-state settlements this week with AIG Insurance Company that require the company to pay an estimated $25 million to $30 million owed to California beneficiaries of life insurance policies, and an $11 million settlement payment.
Controller Chiang began auditing 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. 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.
“For decades, too many insurers have fleeced their policyholders,” said Chiang. “But by vigorously enforcing California’s unclaimed property laws – on the books since 1959 – we are protecting consumers by pushing the insurance industry to fully honor their payment obligations.”
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 more than $1 million.