Lincoln Financial Group Inc. has agreed to pay $52 million to settle a New York regulator’s claims that it lost track of thousands of insurance policies after its 2006 merger with Jefferson-Pilot Corp., causing severe delays in settling some claims. The company agreed to pay $50.7 million as compensation to customers and a $1.5 million fine to the New York State Department of Financial Services (DFS). This settlement comes after customers in some cases experienced years of delays on their claims due to processing problems caused by the combination of Lincoln and Jefferson-Pilot’s claim management systems. Simply put – Lincoln lost track of the customers’ policies. DFS Superintendent Maria T. Vullo said in a news release:
While we appreciate the steps that Lincoln has taken towards making beneficiaries whole, we stress the importance of keeping consumers from falling through the cracks during mergers and other types of business interruptions. Consumers must be confident that their insurers are taking the necessary steps to maintain records, communicate claims processes, and make payments to beneficiaries.
The DFS said, due to technical problems integrating the two companies’ claim systems and a failure to properly train employees, some policyholders had to wait weeks, months and even years before their claims could be processed. Approximately 1,000 New York residents were affected, according to the DFS. The agency alleged that beginning with an internal audit completed in June 2008, employees repeatedly reported backlogs of unpaid claims to midlevel management, but that no action was taken until early 2014. At that time an internal investigation was started, but the DFS was not notified until April 2015. The agency said the company did fully cooperate with its investigation after making the report. An agency spokesman said in an email that all policies held by New York residents have been recovered. The DFS said it is also requiring Lincoln to enhance its policies and procedures to avoid problems with claims processing system compatibility in any future mergers.
Technical problems cost the company $650,000 last year, when it agreed to pay a fine from the Financial Industry Regulatory Authority over a security breach at a subsidiary. Indiana-based Lincoln Financial Securities Corp. paid the fine after hackers in mid-2012 accessed its cloud server and lifted the confidential records of about 5,400 customers. The current case is In the Matter of Lincoln National Corp. et al., before the New York State Department of Financial Services.