Consistency With Unclaimed Death Benefits Is ‘Long Overdue’

By Linda Koco
InsuranceNewsNet

It’s not often that insurance industry organizations endorse regulatory proposals for inquiry into business practices, but this is an exception.

The American Council of Life Insurers (ACLI) has urged state regulators to go ahead and do what one regulator had proposed earlier: Start studying whether to address the consistent handling of unclaimed death benefits in life and annuity contracts.

In a five-page letter to Tennessee Commissioner Julie Mix McPeak, the ACLI official wrote that such a study is “long overdue.”

McPeak is chair of the Life Insurance and Annuities (A) Committee, which will hold a conference call on Dec. 4 to “discuss and consider adoption of” a proposed charge for the committee.

The proposed charge says the committee “should undertake a study to determine if recommendations should be made to address the consistent handling of unclaimed death benefits.”

A patchwork quilt

In his letter to the A Committee, J. Bruce Ferguson contended that “a patchwork quilt of laws, administrative interpretations and multistate settlement agreements for unclaimed benefits has emerged” over the last three years.

This has resulted in “a regulatory framework that is virtually impossible for most insurers to operationalize,” wrote Ferguson, who is senior vice president-state relations for the trade group.

This is not the first time ACLIhas advocated for regulatory consistency in unclaimed death benefits.

Since 2011, Ferguson wrote, ACLI has been on record as supporting enactment of “reasonable new laws” specifying life insurers’ duties to beneficiaries when an insured’s name appears in the Social Security Administration’s Death Master File (DMF) as deceased but a claim has not been filed.

The ACLI is advocating about this once again because NAIC’s A Committee had requested comments on a proposal to take up a study of the issue.

A few weeks ago,Nebraska Director of Insurance Bruce R. Range got the ball rolling in a strongly worded letter submitted to the same committee. In that letter, Range proposed the A Committee consider forming a working group or subgroup on the subject and also seek assistance from NAIC’s Market Regulation (D) Committee.

“The time has come for the NAIC to establish guidance regarding this matter,” Lange wrote, predicting that delays will “increase the chances that states will adopt non-uniform measures,” and that lack of guidance “will create uncertainty for insurers, regulators and consumers.”

The events come as various state regulators continue to announce that they have reached multi-state agreements — averaging about one a month or so — with various insurers whose unclaimed life benefits practices they regulators found wanting.

The regulatory investigations have focused on carrier failure to checkthe DMF for deceased life insurance policyholders, a process that can help ensure timely payment of policy proceeds to beneficiaries.

Upwards of 40 insurers have been named in settlements involving such allegations, at least since 2011. In many instances, six or more states join in on the investigations, and the multi-state settlements can be for several million dollars, with each state receiving a share.

New agreements in recent weeks include a $4 million settlement with the new owners of Aviva Life & Annuity Company and Aviva Life & Annuity Company of New York (Aviva) over the use of the DMF database. Announced in November, this resulted from a multi-state investigation by California, Florida, Illinois, Iowa, New Hampshire, North Dakota and Pennsylvania.

The same states recently reached a similar settlement, this time for $3.3 million, with Midland National Life Insurance Company and North American Company for Life and Health Insurance (Midland).

In October, six regulators announced a $15 million settlement agreement with New York Life related to the same issue. California said it was the “principal lead state,” with the supporting states being Florida, Illinois, New Hampshire, North Dakota and Pennsylvania.

The California Department of Insurance, in announcing the October agreement, included some commentary on why state regulators are doing these investigations.

“For many years,” the department said, “life insurers have used the DMF to search for and stop payments to annuity holders, but did not use the database to identify deceased life insurance policyholders whose beneficiaries are owed life insurance proceeds. It is estimated that through this practice, insurers avoided paying billions of dollars in life insurance proceeds to beneficiaries and also failed to turn over unclaimed proceeds to state controllers throughout the United States.”

Complexity

Studies by NAIC committees often, though not always, lead to proposals for new regulations. That possibility does not appear to be a deterrent to ACLI’s decision to support an NAIC study on the issue.

In his letter to the A Committee, Ferguson complained about complexity and inconsistency in the regulatory framework around unclaimed death benefits.

Nine states have enacted new laws based on the Model Unclaimed Life Insurance Benefit Act developed by theNational Conference of Insurance Legislators (NCOIL), he wrote. The model, which was updated as recently as July, essentially requires searches of the DMF and outreach to beneficiaries.

Meanwhile, various courts have rendered decisions with different outcomes on whether state law requires insurers to conduct DMF searches, he said.

In addition, certain state treasurers have put out administrative directives about outreach expectations, and various states have developed lost policy search programs that differ substantially from one another.

“These laws, decisions, directives and regulatory expectations are remarkably different” in many ways, he said, and now Congress is considering legislation that would limit access to the DMF to deter identity theft and tax fraud.

ACLI believes that regulators, consumers and insurers will benefit from having “clear and consistent laws from state-to-state” relating to unclaimed death benefit practices, Ferguson said.

The American Fraternal Alliance also has submitted a letter to the A Committee in support of the committee taking action to clarify and provide guidance.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].