Insurance Industry's Dirty Little Secret

Sgt. Ryan baumann

The death of an American in uniform - no matter what the circumstances - is always a tragedy. Now, the Department of Veterans Affairs and the State of New York are investigating whether life insurance companies are taking advantage of their grieving families at a time when they're most vulnerable.

This is in response to a story we brought you last night, based on a six-month investigation by Bloomberg Markets Magazine.

It's being called the life insurance industry's dirty little secret: revelations the nation's second largest insurer was profiting from the death benefits of fallen soldiers.

"Until today I actually believed that the families of our fallen heroes got a check for the full amount," said Secretary of Defense Robert Gates on Thursday. "So this came as news to me."

CBS Evening News Anchor Katie Couric reports survivors like Cindy Lohman, whose son Ryan was killed in Afghanistan, believed they'd be getting checks too.

Instead, they were told their death benefits were being placed in a secure, interest-bearing account. But the funds are actually held in the company's own general corporate account, allowing Prudential to earn the lion's share of the interest for itself.

"I was stunned to find out that 'yeah, I had been duped.'" Cindy said.

In 2008, when Cindy Lohman's statement said she was earning less than 1 percent interest on her Alliance Account, public records show Prudential was earning almost 5 percent on its corporate account.

Read the Bloomberg Markets Magazine Report
A Fallen Hero: How an Insurance Company Profited

"When I read about it and saw how despicable it was I frankly thought it was treasonous," said Rep. Patrick Murphy, D-Pa.

Rep. Murphy is an Iraq War veteran himself, and says he's looking into possible legislation to end the practice of so-called "retained asset accounts" permanently.

"I am not sure if it is criminal or not, but what I know is it's wrong and it should stop," Murphy said. "And if they don't stop it themselves, we are going to stop it for them."

But the practice extends well beyond the military. New York-based MetLife Inc., the country's largest life insurer, is one of over 120 insurance firms holding some $28 billion in retained-asset accounts.

Today, New York state Attorney General Andrew Cuomo launched his own consumer fraud investigation, serving subpoenas to MetLife and seven more life insurance providers.

David Evans, the writer of the Bloomberg Markets Magazine investigation said his inbox was flooded with e-mails today, from policy holders saying they're reeling from a broken trust.

"They sound like they feel betrayed that they didn't have more information about how these policies worked and they had to learn about it by reading a magazine article," Evans said.

In a statement yesterday to CBS News, Prudential said, "We fully disclose the nature and terms of the account to accountholders, including the interest credited to their account."

Late today, Prudential told us it's in talks now with the Department of Veterans Affairs to address the concerns that have been raised.