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Life Insurer Rescinded Paid-Up Life Policies Without Consumer Consent: New York Officials

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The New York Department of Financial Services wants life insurers in the state to comply with the state’s policyholder notice rules when they try to declutter blocks of life insurance business.

The department sent that message Tuesday, by announcing the imposition of a $260,000 fine on a life insurer that rescinded 260 small, paid-up life insurance policies without the consumers’ consent.

(Related: Phoenix Finalizes Merger With Private Equity-Backed Reinsurer)

The department imposed the fine on American Progressive Life and Health Insurance Company of New York.

Linda Lacewell, the department’s superintendent, said in a statement that the insurer “took the power of choice from consumers into their own hands.”

“We expect insurers to play by the rules, and the department will take action to ensure they do,” Lacewell said in the statement.

American Progressive Life

American Progressive Life was founded in White Plains, New York, in 1945. Company owners later put the company under the control of a holding company, Universal American Financial Corp. WellCare Health Plans Inc. of Tampa, Florida, acquired Universal American in 2016.

(Related: WellCare to acquire Universal American)

Universal American ceded all of the traditional life insurance business that was still on its books in August 2016 to a former affiliate, Constitution Life Insurance Company, through a 100% coinsurance basis reinsurance agreement, according to a New York department financial examination report for 2017 that was released in May.

Nassau Reinsurance Group Holdings L.P. then acquired Constitution Life, according to the New York department.

The transactions involved traditional life insurance that provided about $255 million in death benefits to Constitution Life, according to the New York department.

In the consent order summarizing the New York department’s agreement with American Progressive Life, the department shows that an executive at WellCare is the contact person for American Progressive Life.

The Policies Rescinded

New York department officials say they looked into American Progressive Life policy rescissions due to a consumer complaint.

The department found that, from 2010 to 2019, American Progressive Life rescinded reduced paid-up life insurance policies with a cash value of $500 or less, officials say.

The company paid the policies’ cash value back to the 260 affected policyholders without the policyholders’ consent, in violation of New York state insurance law, officials say.

The policies started out with $2.3 million in death benefit face value and ended up with total reduced paid-up death benefits of $32,945.

The Consent Order

The New York department consent order calls for American Progressive Life to develop a plan for compensating policyholders or beneficiaries for each violation.

The insurer is supposed to identify the policies that it rescinded without consent of the policyholders.

“The company will give those policyholders the option of choosing to put their policies back in force without seeking to recoup any funds paid out as part of the unauthorized rescissions of the policies,” officials say. “As an alternative, consumers may receive an additional payment reflecting the difference between the surrender value previously paid and the reduced paid-up death benefit.”


More information about the consent order is available here.

— Read Universal American To Sell Medicare FFS In 47 States, on ThinkAdvisor.

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