State investigations of life insurers’ claim payment practices may do more damage to the insurers’ image than to their surplus.

Neil Strauss, a senior credit officer at Moody’s Investors Service, New York, gives that assessment in a commentary on recent moves by California, Florida and other states to look at insurers’ efforts to identify life insurance policy owners who may have died and locate the beneficiaries.

“It is important to note that death claims arguably are not owed to beneficiaries until they file a claim,” Strauss says. “Thus, the issue is somewhat murky since the legal code is subject to interpretation.”

Insurer settlements and other payments announced so far appear to be modest relative to the life insurance industry’s $300 billion in surplus, Strauss says.

“With the adverse publicity for the life industry, this matter is likely to keep the insurers in the headlines until audits are completed and potential settlements are reached,” Strauss says.

That could lead to reputational risk for an industry “whose reputation and business are based on the timely payment of insurance claims,” Strauss says.

- Allison Bell

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