Prudential should change practices after Division of Labor settlement

The US Division of Labor (DOL) has introduced a settlement that can see Prudential Insurance coverage Firm of America (Prudential) revise its life insurance coverage practices. This follows a federal investigation that discovered the insurer had denied claims based mostly on contributors’ failure to show proof of “insurability” when making use of for protection.

New Jersey-based Prudential, a subsidiary of Prudential Monetary, collected life insurance coverage premiums for “prolonged durations” however denied quite a few claims on insureds’ deaths, citing the insurability challenge. That is in keeping with a DOL press launch, shared with Insurance coverage Enterprise on April 19, 2023.

DOL investigation into Prudential “insurability” claims denials

An investigation by the DOL’s Worker Advantages Safety Administration (EBSA) discovered that Prudential had supplied group life insurance policies to companies, with contributors capable of allow payroll deductions to pay for extra supplemental protection. EBSA’s investigation unearthed that Prudential rejected greater than 200 claims referring to the supplemental protection, with the reason is contributors “failed to offer proof of insurability”, the DOL replace stated.

“This egregious observe left grieving households with out the life insurance coverage for which their family members had paid, in some instances, for a few years,” stated Solicitor of Labor Seema Nanda. “Following our investigations, Prudential has agreed to deal with this observe and make sure that beneficiaries should not harmed within the occasion employers fail to confirm that the contributors’ proof of insurability was authorised previous to amassing premiums.”

Different life insurers have additionally been discovered to interact in related practices, in keeping with the DOL.

“We’d urge all insurers to look at their practices to make sure that they aren’t engaged in related conduct,” Nanda stated.

Prudential and DOL settlement phrases

Beneath the settlement phrases, Prudential can be prohibited from denying a beneficiary’s declare based mostly on a scarcity of insurability proof the place premiums have been collected for greater than three months, in keeping with the DOL press launch.

The settlement additionally offers further protections to current contributors, the DOL stated, which is able to make sure that protection can’t be denied greater than a yr after they started paying premiums based mostly on insurability, else based mostly on proof that they had been now not insurable after they began to make premium funds.

“When employees pay life insurance coverage premiums, they need to be assured that their beneficiaries will get the advantages they bought to offer for his or her monetary safety,” stated Assistant Secretary for Worker Advantages Safety Lisa M Gomez. “The Worker Advantages Safety Administration will take acceptable motion towards any insurance coverage firm that collects common premium funds from plan contributors and later performs a recreation of ‘gotcha’ to wrongfully deny advantages based mostly on technicalities like ‘insurability’ after the participant passes away.” 

The division has been knowledgeable that Prudential will voluntarily reprocess denied claims from June 2019 onwards and can present advantages for claims beforehand refuted based mostly “solely on lack of proof of insurability”, the DOL stated.

The settlement additional acknowledged that group policyholders that accumulate premiums, together with employers which have sponsored plans, might be chargeable for supplemental protection claims from beneficiaries in the event that they failed to tell contributors that proof of insurability had not been authorised by the insurer.

Prudential stated in an emailed assertion: “Constructive engagement with our regulators is a vital element of doing enterprise the proper means, which is foundational to our method to delivering for our prospects, whereas fulfilling our regulatory obligations. Now we have labored with the Division of Labor to resolve this matter. We’re addressing this with supplemental group life insurance coverage prospects which can be impacted and offering clear steering to our prospects concerning the obligations for sustaining proof of insurability.”