Recently, the Associated Press reported that the New York State Attorney General has served subpoenas on two major multi-national life insurers as part of that office’s inquiry into those companies policies for paying death benefits to life insurance policyholders’ beneficiaries. This news comes after Bloomberg News reported that the United States’ Department of Veterans’ Affairs has begun an investigation into the possibility that life insurance companies are improperly benefiting by holding onto death benefit proceeds after these should have been paid to death benefit beneficiaries.
Specifically, Bloomberg News reported that many major life insurers standard practice is for the companies not to pay a life insurance death benefit in a lump-sum. Instead, many life insurance companies are holding these cash benefits in their own investment accounts so that the companies can invest the cash and profit on their own behalf. The report comments that these companies are making significant profits for themselves while they pay the parties that are entitled to the death benefit a very low interest rate for allowing the company to use the money for its own interests. In addition, the report says that these insurers have tended to mislead these beneficiaries about how well the companies are protecting this money on the beneficiaries’ behalf.
With this kind of United States Government investigation into life insurance company practices, it raises the question should life insurers working in China be concerned about a government regulatory authority investigation into their death benefit payment practices?
In general, the Chinese government tends to place a lot of emphasis on making sure policyholders understand the insurance policies they buy, and the government tends to hold insurers accountable when they fail to properly explain insurance policies to policyholders. Therefore, we tend to think the answer is yes, insurance companies should be concerned that the Chinese government may place more scrutiny on their death benefit payment practices because of the United States’ government’s investigation into life insurance death benefit payment practices.
We always recommend our insurance client’s stay abreast on Chinese government regulatory authorities’ legislative, regulatory, and enforcement activities. At present, we are not aware that the Chinese government will begin to place more scrutiny on insurers’ death benefit payment practices. In turn, we believe that the best course action for insurers working in China is for them to review their death benefit claims handling procedures to make sure that they are adhere to the Chinese law’s requirements for death benefit payments. This internal procedural review will help insurers in case the Chinese government does decide to place company practices under more scrutiny.
If you have any questions about what exactly the Chinese law’s requirements are for death benefit payments, or any other Chinese legal compliance questions please contact us.