The US Department of Labor (DOL) has announced a settlement that will see Prudential Insurance Company of America (Prudential) revise its life insurance practices. This follows a federal investigation that found the insurer had denied claims based on participants’ failure to prove evidence of “insurability” when applying for coverage.
New Jersey-based Prudential, a subsidiary of Prudential Financial, collected life insurance premiums for “extended periods” but denied numerous claims on insureds’ deaths, citing the insurability issue. This is according to a DOL press release, shared with Insurance Business on April 19, 2023.
An investigation by the DOL’s Employee Benefits Security Administration (EBSA) found that Prudential had offered group life policies to businesses, with participants able to permit payroll deductions to pay for additional supplemental coverage. EBSA’s investigation unearthed that Prudential rejected more than 200 claims relating to the supplemental coverage, with the reason being participants “failed to provide evidence of insurability”, the DOL update said.
“This egregious practice left grieving families without the life insurance for which their loved ones had paid, in some cases, for many years,” said Solicitor of Labor Seema Nanda. “Following our investigations, Prudential has agreed to address this practice and ensure that beneficiaries are not harmed in the event employers fail to verify that the participants’ evidence of insurability was approved prior to collecting premiums.”
Other life insurers have also been found to engage in similar practices, according to the DOL.
“We would urge all insurers to examine their practices to ensure that they aren’t engaged in similar conduct,” Nanda said.
Under the settlement terms, Prudential will be prohibited from denying a beneficiary’s claim based on a lack of insurability evidence where premiums have been collected for more than three months, according to the DOL press release.
The settlement also gives additional protections to existing participants, the DOL said, which will ensure that coverage cannot be denied more than a year after they began paying premiums based on insurability, else based on evidence that they were no longer insurable after they started to make premium payments.
“When workers pay life insurance premiums, they should be confident that their beneficiaries will get the benefits they purchased to provide for their financial security,” said Assistant Secretary for Employee Benefits Security Lisa M Gomez. “The Employee Benefits Security Administration will take appropriate action against any insurance company that collects regular premium payments from plan participants and later plays a game of ‘gotcha’ to wrongfully deny benefits based on technicalities like ‘insurability’ after the participant passes away.”
The department has been informed that Prudential will voluntarily reprocess denied claims from June 2019 onwards and will provide benefits for claims previously refuted based “solely on lack of evidence of insurability”, the DOL said.
The settlement further stated that group policyholders that collect premiums, including employers that have sponsored plans, could be liable for supplemental coverage claims from beneficiaries if they failed to inform participants that evidence of insurability had not been approved by the insurer.
Prudential said in an emailed statement: “Constructive engagement with our regulators is an important component of doing business the right way, which is foundational to our approach to delivering for our customers, while fulfilling our regulatory obligations. We have worked with the Department of Labor to resolve this matter. We are addressing this with supplemental group life insurance customers that are impacted and providing clear guidance to our customers regarding the responsibilities for maintaining evidence of insurability.”
