Groups Square Off Over Unclaimed Benefits Model Act

Requiring life insurers to compare information from life insurance and annuity contracts that have either lapsed or are no longer in force with a national database of deceased citizens will invite legal challenges, industry groups said.

Burdensome and expensive “fuzzy matching” requirements that force carriers use to search the Social Security Administration’s Death Master File database should be removed from the proposed framework, the American Council of Life Insurers said.

“The criteria proposed here yields few Death Master File matches at unreasonably high costs,” the ACLI wrote in a Dec. 16 letter to the National Association of Insurance Commissioners (NAIC).

“The controversy increasingly is not whether and insurance company should search the Death Master File, but rather, to what degree must it expend resource to search for insured and beneficiaries based on alleged but uncertain, possible matches,” the ACLI wrote.

The NAIC earlier this month asked for comments on a draft proposal of the Unclaimed Life Insurance and Annuities Model Act.

Consumer groups urged the NAIC to require “due diligence requirements” to all in-force and future policies, contracts and retained asset accounts. Likewise, all older policies no longer in-force but for which “no claim has been paid and no explicit cancellation has been made” should be included.

Failure to require retroactive application “defeats the purpose” of consumer protections because the model act’s requirements would not apply to most policies, contracts and retained asset accounts “for decades to come,” according to written comments submitted by the Center for Economic Justice.

“This can surely not be the intent of any regulator or policymaker given the evidence of insurers’ failure to pay billions of dollars of claims due to beneficiaries’ lack of knowledge of the existence of the polices, contract and retained asset accounts,” the CEJ wrote.

Designed to establish procedures around what carriers must do to identify people whose deaths require payouts in accordance with policy terms, the NAIC model law would serve as a guide for other states to adopt.

Industry critics and state regulators alleged that carriers in the past have dragged their feet to confirm death benefit payouts on life insurance policies, yet have been quick to consult the Death Master File to terminate lifetime annuity payments.

Carriers say they are under no obligation to search the Death Master File, a database that sometimes contains incomplete data.

Investigations into unclaimed life insurance policies have found insurance carriers sitting on tens of millions of dollars in unpaid benefits to beneficiaries, who were often unaware they were entitled to the benefits in the first place.

As of last spring, in the wake of several investigations, life insurers had returned more than $1 billion to beneficiaries and have paid tens of millions of dollars in fines to regulators.

As a result of a multistate settlement, carriers have agreed to reforms by comparing records against the Death Master File to determine whether death benefits still remain unclaimed.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.