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MetLife to Slash Costs by 2019 – Are More Claim Denials Coming?

image of scissors cutting through the word costs

When Insurance Companies Cut Costs, An Increase In Denied Insurance Claims Can Follow

$1 billion in costs to be cut due to lagging investments

Many news outlets are reporting that MetLife, Inc. will cut $1 billion, or 11%, in costs by the end of 2019.  MetLife is one of the nations’ largest disability and life insurance companies.  The cuts were announced by MetLife’s Chief Executive, Steven Kandarian, in an investor conference call on August 4, 2016.  The biggest cost cut will take the form of a spin-off of a large division of its retail life insurance business into a new company called Brighthouse Financial.

A large part of the remaining business that MetLife may impact with its cuts will be its group benefits business, which MetLife is keeping.  This arm of MetLife sells group insurance policies for disability and life insurance to employers.  These policies are regulated as employee welfare benefit plans under a federal law known as ERISA, the Employee Retirement Income Security Act.  ERISA plans usually have lower costs than private insurance policies, but the amount of benefits can far outweigh the amount of premium paid for the benefits.  Kandarian announced that part of the cuts will be in form of job loss, and that means less employees to handle claims and other business.

Life insurance companies tend to invest in higher quality bonds, often tied to the 10 year Treasury Note rate.  MetLife, like many other insurers, has not made as much money as hoped, because the federal reserve has kept interest rates low for quite some time.  Increased bond rates are not expected to rise much in the near term.

Of course, spinoffs do not come without a price.  The Brighhouse Financial move will divest about 20% of MetLife’s operating earnings.  MetLife will no longer be the biggest life insurance company in the U.S., that title will go to Prudential Financial.  So, spinoffs not only save money, but lose revenue too.

Will MetLife’s cuts cause more life and disability insurance claims to be denied?

In our experience representing life and disability insurance clients over the past 24 years, any time life and disability insurance companies decide they are not making enough money in their investments, part of the costs they slash take the form of denied claims.  This is not a guarantee, or even a prediction.  However, we have seen claim denials rise in the past when insurers announce cost cutting or in a bad market.

It would not be shocking to see MetLife’s claim departments more aggressively handling claims with an eye toward denying or terminating benefit payments as part of this cost cutting move.  In more difficult investment times, it is a very common tactic for insurers.  Again, we are not predicting this, but we all need to be wary of MetLife’s cost-saving actions, because their biggest expense is paying claims.

We will keep an eye on MetLife claims and see how their cuts impact people making life and disability claims.

Related Article:

MetLife Announces Plan to Stop Selling Individual Disability Insurance Policies


John V. Tucker leads a team of experienced disability insurance and life insurance attorneys.  To discuss your claim with one of our attorneys, call us at (866) 282-5260.


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