Death Master File Issue Is Anything But Dead

By Linda Koco
InsuranceNewsNet

The “death master file” issue is far from dead. An influential committee of state insurance regulators recently voted to explore whether it should look into establishing a framework for handling unclaimed death benefit issues.

The vote came during a conference call of the Life Insurance and Annuities (A) Committee of the National Association of Insurance Commissioners (NAIC).

One of its members had urged the committee to take action on the issue without delay.

The term unclaimed death benefits refers to policy death benefits that life insurers have not yet paid out to beneficiaries. In recent years, states have skewered insurers for failing to use the Social Security Administration’ s Death Master File to identify deceased life policyowners in a timely manner. This has caused slow or no payment of life policy proceeds to affected beneficiaries, the states have charged.

The fact that the A Committee has decided to look into this issue might be viewed as a prelude to NAIC developing model regulations in this area. However, the language of the proposal voted upon during the conference call seems preliminary and cautious.

A new “charge”

Specifically, the vote was to “expose for comment” the idea of adding a new “charge” to the A Committee’s menu of 2014 proposed charges. (“Charges” form the to-do list for the committee’s work during the year.)

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

Based on that language, the regulators first will need to receive comments on the proposal and then to assess whether to pursue such a study and after that, recommendations. This could take months, if not longer.

That fact that the proposed charge speaks of making “recommendations” suggests that the regulators may be looking to draft potential guidance for regulators, rather than model regulations or standards.

The committee has a long list of charges already. These include further work on a regulatory framework for states to use when assessing contingent deferred annuities, a topic that has been on the committee agenda for at least a year and that has drawn its share of controversy. The committee has cleared certain hurdles in this area and is now moving forward with related work.

“Arguably, the A Committee already has a lot of important work on its plate,” allowed Nebraska Director of Insurance Bruce R. Range in a letter he wrote to the committee on the unclaimed death benefits issue. 

However, he said he is convinced "the time has come for the NAIC to establish guidance regarding this matter.”

Range proposed that the committee consider forming a working group or subgroup on the subject and also seek assistance from NAIC’s Market Regulation (D) Committee.

A long-standing issue

The suggestion comes more than two years after state probes into unclaimed death benefits practices started making headlines across the country.

Beginning in 2011, various states, acting individually or in concert, launched examinations, public hearings, subpoenas and audits on the matter. They said their purpose was to see whether, and to what extent, insurers had failed to fulfill their beneficiary payment responsibilities. Some of these efforts were led by state attorneys general and others by state insurance departments.

NAIC became involved, too. In May 2011, the regulatory association formed a special task force to help coordinate regulatory investigations involving the claim settlement practices of life insurance companies. States named to that task force included California, Florida (chair), Illinois, Iowa, Louisiana, New Hampshire, New Jersey, North Dakota and Pennsylvania.

A number of states later trumpeted settlement agreements they had reached with various insurers concerning the practices. The multi-state settlements often totaled millions of dollars. The insurers did not admit wrong-doing but said they agreed to settle to move things forward.

The unclaimed death benefits issue gave rise to a number of lawsuits as well. These have been filed by both state treasurers and insurance companies, according to an article published by the National Association of Life Companies in February.

However, new laws and regulations have been sparse, with New York being a notable exception.  In December 2012, that state enacted a law requiring insurers to make regular searches of records to identify when a policyholder died and to locate beneficiaries so that life insurance proceeds can be paid. Just a few weeks ago, on Oct. 30, New York Superintendent of Financial Services Benjamin M. Lawsky signed an “emergency measure” requiring insurers to take certain other steps regarding unclaimed death benefit practices. (The measure is the newest version of emergency measures Lawsky signed on five earlier occasions—Aug. 10, 2012; Nov. 9, 2012; Feb. 6, 2013; May 6, 2013, and Aug. 2, 2013.)

In his letter to the A Committee, Nebraska Director Range said he appreciates the “tremendous strides” that that already have been made. He also noted that guidance established in published settlement agreements may provide some direction. But he said that guidance “is not relevant in all situations.”

No more delay

Delay in developing guidelines will “increase the chances that states will adopt non-uniform measures,” Range predicted. Furthermore, the “lack of guidance will create uncertainty for insurers, regulators and consumers.”

Apparently, that viewpoint held sway with members of the A Committee.

In January of this year, New York turned heads when it announced that its investigations, which started in July 2011, had resulted in more than $665 million being paid to life insurance beneficiaries who had been unaware that they were entitled to money from insurance companies.

Estimates of how much money unclaimed benefits represent nationwide range from a few billion dollars to multiple billions. No industry organization is claiming to have identified the actual number. Whatever the amount, it’s clear that big dollars, such as those reported by New York, continue to get attention.

The investigations have financial implications not only for beneficiaries who are due unclaimed death benefits but also for the states, which stand to collect sums owed to deceased beneficiaries and/or to beneficiaries who cannot be located after a substantial search.  In addition, the investigations have given rise to a cottage industry of auditors, legal services and various third party firms that seek to help insurers, consumers and others as they wend their way through the unclaimed death benefit thickets. 

In view of that, the A Committee’s action, as exploratory as it may seem, has significance and will be closely followed.

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].