On April 19, 2023, the U.S. Department of Labor (DOL) announced a settlement with Prudential Insurance Company of America (Prudential), requiring Prudential to revise its evidence of insurability (EOI) practices in the wake of a federal investigation. EOI is a common industry practice involved in the underwriting process of group supplemental life insurance policies in which potential insured individuals are required to complete questionnaires documenting their overall health before being approved for coverage under such policies.
The DOL investigation focused on supplemental group life insurance policies underwritten by Prudential. As general background, these policies are sponsored by employers, offered to employees, and generally paid via employee payroll deductions. The investigation concluded that Prudential collected supplemental group life insurance policy premiums from employee participants via payroll deductions from 2017 to 2020, and then denied over 200 claims after the participants died, citing the participants’ failure to provide EOI when they applied for insurance. The investigation also determined that Prudential collected premiums for this supplemental coverage from participants despite lacking EOI dating back to 2004. The DOL conducted parallel investigations and determined that other life insurers engaged in similar practices.
DOL Settlement Agreement
Highlights of the DOL settlement agreement with Prudential include the following:
- Prudential is prohibited from denying a beneficiary’s claim based on the lack of EOI in instances where premiums were collected for more than three months.
- Coverage cannot be denied more than a year after existing participants started paying premiums based on EOI, or based on evidence they were no longer insurable after they first began making premium payments.
Key Point: This provision of the settlement agreement specifically provides that an insurer may request missing EOI for living employees and/or eligible dependents enrolled in supplemental life coverage within one year of the date it received the first premium payment for such coverage. This EOI request must address the individual’s health status as of the date the insurer received the first premium payment, and more recent health information will not be considered. If the insurer determines the employee and/or dependents are ineligible for coverage due to failure to submit EOI, the insurer is required to promptly return the applicable premiums to the employer.
- Prudential is required to notify all group policyholders of these new processes.
- Prudential also promised to voluntarily reprocess denied claims dating back to June 2019, and provide benefits for the claims previously denied based solely on lack of EOI.
- Employers who choose to act as their own recordkeeper, or hire a third party (such as a benefit administration vendor) for plan administration, are responsible for maintaining the records of premiums collected and for tracking employees and their eligible dependents required to submit EOI to the insurer.
Key Point: If an employer collects supplemental life insurance policy premiums via payroll deductions and fails to inform employees and/or their eligible dependents that the insurer has not approved their EOI, the employer may be liable for claims by beneficiaries.
This settlement agreement provides valuable insight into the DOL’s position regarding premium payment administration and EOI practices between an employer sponsoring a group supplemental life policy and the insurer. DOL Assistant Secretary for Employee Benefits Security Lisa M. Gomez is quoted in the settlement announcement warning that “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.”
This settlement agreement serves as a potent reminder for employers and their third-party recordkeepers to shore up their payroll deduction administration processes and EOI practices, in conjunction with their supplemental life insurer, to mitigate potential claims liability.
A recommended operational best practice for employers working with third-party benefit administrators is ensuring the administration platforms are programmed to only reflect payroll deductions up the guaranteed issue amount (the amount not subject to EOI) while EOI is pending. Once an employee’s (or their eligible dependent’s) EOI is approved, the deduction amount should be adjusted to reflect the final approved supplemental life coverage and feed into the payroll provider system for said deduction.
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