Prudential: You're in our blood-sucking hands now. . .

[KGW]

http://www.bloomberg.com/news/2010-0...st-profit.html

Lohman, a public health nurse who helps special-needs children, says she had always believed that her son’s life insurance funds were in a bank insured by the FDIC. That money — like $28 billion in 1 million death-benefit accounts managed by insurers — wasn’t actually sitting in a bank.
It was being held in Prudential’s general corporate account, earning investment income for the insurer. Prudential paid survivors like Lohman 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings.

[BigBagel]

Re: Prudential: You're in our blood-sucking hands now. . .

Screwing a dead soldier's family. These people are total scum.

[chr5648]

Re: Prudential: You're in our blood-sucking hands now. . .

Using the government to exploit regular joe's? Where have I heard that before?

[thriftyandboringinohio]

Re: Prudential: You're in our blood-sucking hands now. . .

This was on NPR today. Seems to me like much ado about nothing. Beneficiary can withdraw 100% and put the money anywhere they wish, the insurance company gains a week or two of float. As much as I loath the FIRE companies, this is just a clever business practice and any harm done is small potatoes.

[Milton Kuo]

Re: Prudential: You're in our blood-sucking hands now. . .

This was on NPR today. Seems to me like much ado about nothing. Beneficiary can withdraw 100% and put the money anywhere they wish, the insurance company gains a week or two of float. As much as I loath the FIRE companies, this is just a clever business practice and any harm done is small potatoes.

While the money can be withdrawn, the problem, according to this Bloomberg article, is that the insurance companies give the beneficiaries the impression that the money is in a regular bank account that is FDIC-insured. The beneficiaries are even given something that looks like a checkbook with "checks" that have the name of JP Morgan Chase on them.

Instead, the money is held by the insurer for further investment/speculation and is not insured by the U.S. government in any way. If the insurer decides to gamble as AIG did and loses its shirt, the beneficiaries could potentially lose every penny of their benefit.

The insurance companies claim they offer these retained-asset accounts for the convenience of the beneficiaries. This is tripe. If the insurance companies really wanted to provide a convenience for the beneficiaries, the companies could partner with a commercial bank and create an FDIC-insured account in the name of the beneficiary.

One of the most common ways insurance companies make more money than they normally would is by delaying payout on policies. This usually takes the form of falsely-denied claims or underestimating appraised damages. The retained-asset account is just yet another trick in the same vein.

Clever, yes. But definitely unethical and possibly illegal.

[monyPro]

Re: Prudential: You're in our blood-sucking hands now. . .

The insurance companies claim they offer these retained-asset accounts for the convenience of the beneficiaries. This is tripe. If the insurance companies really wanted to provide a convenience for the beneficiaries, the companies could partner with a commercial bank and create an FDIC-insured account in the name of the beneficiary.

One of the most common ways insurance companies make more money than they normally would is by delaying payout on policies. This usually takes the form of falsely-denied claims or underestimating appraised damages. The retained-asset account is just yet another trick in the same vein.

I have been an independent insurance and financial service professional for 30+ years. The insurance companies ARE providing a service to the beneficiaries with the "Access Accounts". If the insurance company just mailed a check to the beneficiary the critics would complain that the insurance company paid NO interest from the date of death.

Let's look at a real world example: assume that the insured died on June 1st and the beneficiary filed claim on August 1st. The insurance company processes the paperwork and is ready to pay the claim on August 15th. The death benefit was $400,000 and the insurance company mailed a check to the beneficiary for $400,000. The beneficiary then holds the check for two weeks before cashing it. There would then be a total of three months of lost interest for the beneficiary. With the terrible access account the beneficiary could write a check for $400,999+ and close the account.

Many beneficiaries are not in a clear state of mind to make major financial decisions shortly after losing a loved one. The "Access Account" allows the beneficiary to take some time to make an informed financial decision. The beneficiaries are given checkbooks with real checks - not something that looks like a checkbook. The rates offered are comparable to any money market fund. FDIC insurance wouldn't cover any $250,000+ benefit payments anyway, so that is not an issue.

Insurance companies are anything but charitable, but this issue is not clever, unethical or even close to being illegal.

[Milton Kuo]

Re: Prudential: You're in our blood-sucking hands now. . .

I have been an independent insurance and financial service professional for 30+ years. The insurance companies ARE providing a service to the beneficiaries with the "Access Accounts". If the insurance company just mailed a check to the beneficiary the critics would complain that the insurance company paid NO interest from the date of death.

Let's look at a real world example: assume that the insured died on June 1st and the beneficiary filed claim on August 1st. The insurance company processes the paperwork and is ready to pay the claim on August 15th. The death benefit was $400,000 and the insurance company mailed a check to the beneficiary for $400,000. The beneficiary then holds the check for two weeks before cashing it. There would then be a total of three months of lost interest for the beneficiary. With the terrible access account the beneficiary could write a check for $400,999+ and close the account.

Many beneficiaries are not in a clear state of mind to make major financial decisions shortly after losing a loved one. The "Access Account" allows the beneficiary to take some time to make an informed financial decision. The beneficiaries are given checkbooks with real checks - not something that looks like a checkbook. The rates offered are comparable to any money market fund. FDIC insurance wouldn't cover any $250,000+ benefit payments anyway, so that is not an issue.

Insurance companies are anything but charitable, but this issue is not clever, unethical or even close to being illegal.

The problem is that it is not made clear to the beneficiaries that the money is not in an FDIC-insured account. The insurance companies create these accounts to give themselves more time to use the money while subjecting beneficiaries to more risk than if they had put the money into a bank. Even at only $250,000 of FDIC insurance, that's better than the $0.00 of protection a beneficiary receives should the insurance company go bust.

Furthermore, it seems the insurance companies have gone out their way, through the use of a "checkbook" (the Bloomberg article I linked to makes it clear that with Prudential, they are not real checks) with JP Morgan Chase's name on it, to make it appear as if the account in question is a regular checking account.

If the insurance company really wanted to provide a convenience to the beneficiary, the insurance company could open accounts with real banks and deposit the money there. The fact that there is a $250,000 FDIC insurance limit is somewhat irrelevant -- the insurance company could just create accounts with more than one bank. Barring that, the insurance company should at least create a wholly independent company to hold the money so that if the insurance company goes bankrupt, the beneficiaries' money is not subject to seizure by creditors.

The fact that this information is not made clear to the beneficiaries (putting it in the fine print does not count as being clear) speaks volumes about whether this practice is ethical or not. As for whether it is illegal, we'll find out soon enough as the regulators get involved.

You work in the insurance industry so I can understand your potential bias. My bias is as a person who has had to make claims against insurance policies and deal with the tiresome games insurance companies play to not make good on the policies. In my personal experience, insurance companies are one of the two or three most dishonest businesses I've ever had to deal with.

[dummass]

Re: Prudential: You're in our blood-sucking hands now. . .

You work in the insurance industry so I can understand your potential bias. My bias is as a person who has had to make claims against insurance policies and deal with the tiresome games insurance companies play to not make good on the policies. In my personal experience, insurance companies are one of the two or three most dishonest businesses I've ever had to deal with.

As a person who worked for a law firm that defended many of the largest insurance companies in the business, you might be surprised that I agree with your comment.