Leading with fear is not the way to greatness.
By Linda Koco
New proposed rules for a Death Master File (DMF) “certification program” are in the works. The federal rules will spell out who can be certified to access the Social Security Administration’s massive database of the deceased.
People in the life insurance, annuities, benefits and other businesses that use the DMF to verify deaths will be keeping an eye out for any certification requirements that could impede their business practice.
Currently, there is no certification requirement at all. Individuals as well as companies — including insurance companies — can access the records at will, typically for a fee.
But now the U.S. Department of Commerce is “actively working” with the Social Security Administration to develop a new set of rules that will institute certification. The rules will require the Commerce Department to certify the people who access DMF according to certain standards, and limit the access window to a specified period.
This is a surprising turn of events, especially for state insurance regulators, many of whom definitely want life and annuity carriers to have full and unfettered access to death records.
The regulators’ conviction about access has grown deep and wide in recent years. This has occurred in the wake of state investigations into the alleged failure of many life carriers to check the DMF for deceased life policyholders even though they regularly searched DMF for deceased annuitants to whom the carriers might still be sending annuity checks.
Regulators have repeatedly charged that the laxness in checking for deceased life policyholders causes delays in the timely payment of death benefits. Therefore, regulators want no impediments in the way of life carrier access to those records.
The new certification program may be a source of concern for insurance carriers as well. Having tussled with regulators over DMF issues and having collectively paid millions of dollars in fines, many carriers now check the DMF regularly, as per state regulation, law or settlement agreement. If the new rules are developed in a way that somehow inhibits their checking processes, carriers may find themselves in a difficult position regarding compliance with state DMF requirements versus federal DMF requirements.
If that were to happen, it could lead to another round of negative publicity about carrier DMF practices — and that could impact agents and advisors who find themselves dealing with a new set of questions from concerned policyholders.
Since the proposed rules are not yet available, there is no certainty that any such conflicts will arise. But the potential for contradictions is enough for industry professionals to put the certification developments on a close watch.
Certification program roots
How did the idea for certifying access come about? The new Bipartisan Budget Act of 2013 (the “Act”), H.J. Res. 59, which President Barack Obama signed into law on Dec. 26, calls for it.
Section 203 of the act directs the Secretary of Commerce to establish a fee-based certification program for all persons who want to access to DMF data for any deceased individual within three years of that individual’s death.
To be certified, interested users must demonstrate that they: have a legitimate fraud prevention or business purpose to access the database; have “systems, facilities and procedures” to safeguard DMF data, and have experience in maintaining confidentiality, security and appropriate use of such data.
The penalties for improper disclosure or misuse of DMF information can be as high as $250,000 per person per year.
The idea for limiting DMF access has kicked around Congress for a while. It has been touted as a measure that would help stop fraud and identity theft (for instance, by making it more difficult for identity thieves to obtain Social Security numbers of the deceased and/or to use the deceased’s records to falsify claims on estates). Some have argued it would help curtail waste as well, perhaps by limiting use of the DMF resource to those with a legitimate need.
However, fraudsters and wastrels are not the only users of the database. Insurance companies, banks, pension administrators, medical researchers, genealogy services, credit agencies and many other businesses use it as well, and some are worried about the coming restrictions.
The National Association of Insurance Commissioners (NAIC) is among the concerned. In a two-page letter sent to Commerce Secretary Penny Pritzker, NAIC President Adam Hamm and four other NAIC leaders argued in favor of balancing privacy protection with policyholder protection. To that end, “life insurers will need prompt and uninterrupted access to the DMF,” they said.
Insurers need this access to comply with DMF-related state laws, regulations and multi-state settlements, the NAIC leaders wrote in the letter, which is now posted on the NAIC website.
Many states require insurers to access and cross-reference the DMF with their in-force policies on a monthly or quarterly basis, and, when there is a match, to notify the beneficiaries and provide information on how to submit a claim, they explained.
New York Superintendent of Financial Services Benjamin Lawsky also wrote to Pritzker. After recounting New York’s journey with developing a DMF checking regulation and later a law, he asked the Commerce Department to “ensure that life insurers operating in New York (and elsewhere, where appropriate) continue to have access to the DMF in an uninterrupted fashion.”
Other organizations, including some genealogists, have made clear that they too want unfettered access to the DMF, at least for certain people in their organizations.
Once drafted, the proposed rules will be published in the Federal Register for public comment, the Commerce Department said in its online notice. The department gave no date for when that will occur, but because Section 203 takes effect in 90 days after enactment of the Bipartisan Budget Act, it may be sooner rather than later.
The Commerce Department did provide some breathing room to the concerned. Until the certification program is set up, “user access to the DMF will continue without interruption under the existing process,” the department said. Then, after the program has started, “it is anticipated that non-certified users will be able to access DMF data limited to data for individuals whose date of death was three or more years earlier.”
Nine states now have laws requiring insurers to check the DMF on a regular basis, according to NAIC President Hamm.
The DMF has about 98 million death records, according to the Government Accountability Office. About 7 million new death reports were added in 2012 alone.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at email@example.com.
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