Insured Need Not Sit Still for Policy Transfers

When Continental Casualty informed its customers that it was transferring its Medicare supplement accounts to Bankers Life & Casualty Co., most policyholders shrugged. Not Lorraine Hovey.

The 67-year-old Wisconsin resident says she considered the news a horrifying shock. Several years prior, she had a policy with Bankers and didn’t like how it handled her account. Moreover, she knew that ratings of Bankers’ financial strength were substantially less impressive than the ratings given to Continental.

Still, Continental said Hovey had no choice but to accept the transfer. Bankers Life told her there was nothing she could do. Even the Wisconsin Department of Insurance said that it was fait accompli.

Hovey’s story illustrates what’s happening to thousands--perhaps even millions--of insurance policyholders today. Although no one keeps precise statistics, experts agree that insurance companies are increasingly transferring blocks of business to competitors or newly-created “pup” companies in an effort to both streamline their businesses and limit their losses.

Sometimes the transfers are mutually beneficial, giving both consumers and companies what they want. Generally speaking, neither premiums nor terms of the contract change. You simply write your check to a new company, industry advocates say.

However, not all insurance companies are equally strong or equally helpful. In some cases, consumers get shuttled into financially ailing firms with poor claims-paying records, says Joseph M. Belth, editor of an Ellettsville, Ind., newsletter called the Insurance Forum. There even have been cases where consumers were transferred into companies that subsequently failed.

Consider the 1,217 policyholders of Security Benefit Life whose accounts were transferred twice before landing at Diamond Benefit Life of Arizona in late 1987. Two years later, Diamond was declared insolvent and taken over by regulators. Policyholders were unable to get claims paid or withdraw their funds.

It took three years and a class-action lawsuit to get Security Benefit to “reassume” these former customers, says Joseph L. Buffalo, attorney with Pope, Shamburger, Buffalo & Ross in Little Rock, Ark. The case finally was settled late last year.

But what troubles consumer advocates most is that insurers frequently mislead consumers into believing that there is nothing they can do about a transfer.

Sometimes--as in the Security Benefit case--policyholders are notified months after the switch has been completed. Hovey was told that by paying her next premium, she would be giving tacit approval of the transfer. Of course, if she didn’t pay the premium, her policy would be canceled.

In reality, you can reject the transfer, says Belth. But it isn’t easy.

Indeed, you normally must be “ridiculously aggressive” to do it, says Robert Hunter, president of the National Insurance Consumers Organization in Arlington, Va.

Ask Hovey. She wrote. She called. She threatened. She cajoled. Finally, after five months of battling, Continental returned Hovey and “a handful” of other recalcitrant policyholders to the fold.

Why is it so tough? One reason is that insurers don’t want you to reject transfers, so they “discourage” them--often by saying flat out that rejections are impossible. (If everyone knew they could reject a transfer, they would reject willy-nilly, says one insider who asked not to be named. And that would make it impossible for insurers to ever get rid of a money-losing line of business.)

Indeed, the industry’s party line is that consumers “don’t universally have the right to say no.” They only have that right when state regulations tell them so, says Harvie Raymond, director of insurance products at the Health Insurance Assn. of America.

However, insurance policies are generally legal contracts between policyholder and insurer. You can’t transfer your policy to your friend, Joe, without your insurer’s consent. And most experts will argue that your insurer can’t do the equivalent without your consent either.

The trick is enforcing your rights.

In some states, regulators require consumers to sign a transfer consent form. If you don’t sign, you’ve rejected the transfer. But since there’s no national regulation of the insurance industry, many states don’t require such affirmative consent.

Consequently, it’s equally common for insurers to “assume” consent if you don’t object. If that’s your insurer’s tack, you have to write to your current insurer, the new company--and, possibly, to state regulators--to reject. If you’re still told you must accept the transfer, you may have to take the matter to court. That’s costly, time consuming and, of course, there’s no guarantee that you’ll win--despite the contract.