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Prudential under pressure to explain payments to military families

By Adam Levine, CNN
  • Prudential official says the company is working to "set the record straight"
  • The insurance company came under fire after a Bloomberg Markets magazine report
  • Prudential's meetings with veteran service groups have gotten a mixed review

Washington (CNN) -- After initial outrage over how Prudential handles life insurance policies of deceased soldiers and veterans, the insurance company is working hard to change the perception it has misled military families.

The company came under fire after a Bloomberg Markets magazine report said cash payments from insurance policies for dead soldiers were being held in interest-bearing accounts, with the bulk of the interest benefiting the insurers. Bloomberg also reported the cash was not placed in banks insured by the Federal Deposit Insurance Corporation.

Prudential has been meeting with "anyone we can meet with so we can set the record straight on what's going on with this account," said Prudential spokesman Bob Defillippo in an e-mail to CNN. "We're making an attempt to get info out there that we think helps clarify the program."

The pressure on the insurance company has not eased, however. The House Oversight Committee said it was investigating how the payouts and accounts are handled and a congressional staff member working on the investigation told CNN the inquiry might broaden beyond Prudential's handling of military policies.

The broader look is a "natural step," the staff member said. "My understanding is that this is a pervasive practice in the insurance industry."

Central to the investigation is the practice of putting the insurance money, by default, into an account rather than sending the beneficiary a lump check.

Committee investigators met with "senior people" from Prudential who tried to explain why they thought the media report about their program was incorrect, the congressional staff member said.

"They wanted to give their side, which we were happy to listen to," the staffer said. Since the meeting, the House committee has requested documents on the program.

This week the Department of Veterans Affairs sent a letter to families holding the accounts to explain that they have the right to move the money to a bank of their choosing. The VA is looking at whether changes to the program are needed, said VA spokeswoman Katie Roberts.

"These interest-bearing accounts are designed to be an interim solution while you determine the best way to manage your financial assets," explained the letter, which was signed by the director of the VA's life insurance program, Thomas Lastowka.

In its meetings with veterans service organizations, Prudential representatives have been trying to combat what they believe are misrepresentations about the services offered.

"We've been talking about things that have been misrepresented, like the notion that beneficiaries don't get everything owed to them. Everything owed to them goes to them immediately. It's not held back, they have access to it," Prudential spokesman Defillippo wrote in his e-mail. Participants can always ask for a "lump sum," he noted.

The meetings with veterans service organizations have gotten a mixed review from the groups.

The American Legion's Peter Gaytan said the meeting with Prudential was "productive" but there are "still questions we have" and that his membership is "working to understand the situation." Gaytan is the Legion's executive director in Washington.

But Gaytan said the Prudential representative spent a lot of time "throwing out percentages" to show the accounts' interest rates are fair, which he said did not help answer the questions his membership has.

"I asked 'Is Prudential profiting' and I got a non-answer. It was shown to me their percentage was better and the response I got was that they do what they do because they are profiting, but nobody is not profiting," he said.

Gaytan was impressed with the eagerness of Prudential to set the record straight and said Prudential officials are "really passionate" to explain they are being fair to veterans. He said company representatives are planning to come to the Legion's national convention in Milwaukee at the end of this month to set up a booth to answer questions.

"I think they want to clarify," Gaytan said.

At the Veterans of Foreign Wars, the meeting was described by spokesman Joe Davis as "good." The group tried to impress on Prudential that the company needs to be more forthcoming about what the options are and that the money isn't necessarily fully insured.

"We told them point blank, the reason this is front page news is that nobody knew about it. It very well may be an industry standard. Just because they are doing this to every beneficiary, not just the deceased soldiers' next of kin, doesn't make it any better," Davis said.