Since the Bloomberg stories ran, a news story from the American Forces Press Service, a news service run by the Department of Defense, surfaced that, in a backhanded way, could be said to have announced the deal. The story, which is the equivalent of a DOD press release, ran in October 1999 to announce a related change the program. It said:
Recent changes to the Servicemembers’ Group Life Insurance program should ease the burden on beneficiaries immediately following a service members death.
Since June 1999, benefits are immediately placed into interest-bearing checking accounts rather than lump-sum checks mailed to beneficiaries, which was the previous practice. Now, beneficiaries receive a checkbook for an Alliance Account set up by Prudential, which runs the program.
‘This is important because it relieves the immediacy on the part of the beneficiary to find something to do with that money,’ Navy Capt. Elliott Bloxom said during an interview.
Neumann said the Bloomberg team was unaware of the DOD news service story. DeFillippo, who sent it to me, said even he only saw it long after the series had run. He found it linked to in one of the comments on Chittum’s original post about the series. Neumann also said no one interviewed in the course of reporting the series had ever mentioned the article and that it doesn’t undo the fact that neither the VA nor Prudential announced the agreement when it was made.
I agree. Granted, the fact that there was a DOD news service story about the change suggests there was no great effort to keep it secret. But going back to my point about more disclosure being better than less, it would have been good to announce that the program was being changed when it happened. And, as a VA lawyer acknowledged in a story, the contract change should have been done in writing. That’s a no-brainer.
Here is another point that apparently didn’t get made to Evans and Neumann. DeFillippo said in an e-mail to Hugh Son, a Bloomberg reporter who writes about insurance, which DeFillippo shared with me after our initial interviews about his complaint:
The Alliance Account assets constitute less than 1 percent of our General Account assets and the rate that we earn on the Alliance Account assets is not comparable to rates earned on the General Account as a whole.
Neither Neumann nor DeFillippo found any record that that point was in the e-mails exchanged after DeFillippo’s and Evans’ conversations became “very contentious,” in DeFillippo’s words.
Which is too bad because it seems like it would have been a useful bit of context for readers of Bloomberg’s September 14 story, which included this (emphasis added):
Prudential invests the survivors’ money in its general corporate account, where it can earn the insurer as much as eight times as much as it currently pays in interest to beneficiaries.
Prudential held $662 million of survivors’ money in its corporate general accounts as of June 30, according to information provided by the VA. Prudential’s general account earned 4.2 percent in 2009, mostly from bond investments, according to regulatory filings. The company has paid survivors holding Alliance Accounts 0.5 percent in 2010.
In the first, July 28, story, Bloomberg wrote that:
Insurance companies tell survivors that their money is put in a secure account. Neither Prudential nor MetLife Inc., the largest life insurer in the U.S. segregates death benefits into a separate fund.
DeFillippo concedes that is true. But he also said that money needed to meet withdrawals from on-demand types of accounts, including the Alliance Accounts, is invested more conservatively for shorter term, lower yields with less exposure to risk. Did the insurance companies make money by holding the accounts? No doubt they did. Was it equal to the spread in the entire amount earned by the general fund and the amount paid beneficiaries? Unlikely.
And were Prudential’s profits from the accounts major? Probably not given the relative size of the accounts to the general fund.
Neumann said that he, Evans and another editor who worked on the series believe: “The issue is the risk of loss for people with retained-asset accounts. The size of a company’s general fund is irrelevant.”