New York Attorney General Andrew Cuomo and the U.S. Department of Veterans Affairs have begun to investigate life insurance companies’ profits from retained death benefits. The New York State Insurance Department also is exploring insurers’ practices.

Andrew Cuomo

Cuomo has subpoenaed MetLife, Prudential Financial Services and six other insurers for information about profits on their retained death benefits, according to Bloomberg, citing a person briefed on the case. The attorney general’s office is apparently investigating if fraud occurred, possibly in the notifications to survivors and in the difference between the insurers’ interest income and the rate paid to beneficiaries, the report said.

Another concern, according to Bloomberg, is whether the insurers, whose death benefit accounts are not guaranteed by the Federal Deposit Insurance Corp., violated a 1933 federal banking law, which prohibits a company from accepting deposits without state or federal authorization.

Meanwhile, Defense Secretary Robert Gates said the U.S. Department of Veterans Affairs will look into the life insurers’ actions.

Bloomberg Markets ignited the actions with its recent report that more than 100 carriers – MetLife and Prudential are the biggest – earn investment income on $28 billion owed to life insurance beneficiaries through retained-asset accounts.

“Until today I actually believed that the families of our fallen heroes got a check for the full amount of their benefits,” Gates told Bloomberg. “This came as news to me.”

Saying the industry is “hoarding millions that belong to military families,” Cuomo said in a statement that it is “shocking and plain wrong for these multinational life insurance companies to pocket hundreds of millions in profits that really belong to those who have lost family members.”

Other insurers subpoenaed by Cuomo include Genworth Financial, Unum Group and an insurer acquired by France’s Axa SA, New York Life Insurance Co., Northwestern Mutual Life Insurance Co. and Guardian Life Insurance Co. of America, Bloomberg reported, citing the person who remained anonymous because the subpoenas had not been made public.