Iowa is among 10 states investigating whether some of America’s largest life insurers are failing to ensure that they pay out on policies of deceased customers, a state insurance division spokesman confirmed this morning. As reported today in The Wall Street Journal, the investigation could shift hundreds of millions of dollars to consumers and state coffers.

According to the Journal, some insurers appeared to have turned a blind eye to data sources that could have revealed that certain policyholders had died and that their heirs were owed money. This happened even though the insurers used the same sources to justify cutting off annuity payments for customers who had died, according to preliminary findings by regulators in California and Florida.

Metlife Inc. and Nationwide Financial Services Inc are the two companies identified in the Journal article. A list of other companies under investigation was not immediately available.

Insurers maintain they are behaving lawfully. Under policy contracts, insurers aren’t required to take steps to determine if a policyholder is still alive, but instead pay a claim upon proper notification from beneficiaries or others.

In March, Iowa joined a working group formed by the National Association of Insurance Commissioners (NAIC), said Tom Alger, a spokesman for the Iowa Insurance Division. Other states on the task force are California, Florida, Illinois, Louisiana, North Dakota, New Jersey, New Hampshire, Pennsylvania and West Virginia.

“The task force will be coordinating regulatory efforts with other state insurance regulators across the country,” Alger said in an email.

The California Department of Insurance, along with the California Controller’s Office, will hold a public hearing on May 23 in Sacramento, at which representatives from MetLife and other companies will testify about their claims settlement practices. Task force members, including at least one senior staff member of the Iowa Insurance Division, will be attending both of these hearings, Alger said.

The issue has its roots in the ambitions of a little-known auditing firm – Waterbury, Conn.-based Verus Financial LLC – that three years ago pitched states on identifying unclaimed life insurance policies that those states could seize as abandoned property. A total of 35 states eventually signed up, agreeing to give Verus a cut of any take. The firm is now examining nearly two dozen insurers for tardiness in paying out on policies.

Alger said Iowa’s insurance division does not have a contract with Verus Financial and he’s not aware of any other Iowa agencies contracting with the company.

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