NAIC Eyes Retroactive Unclaimed Property Rule

When insurers should be held accountable for failing to comply with state unclaimed property laws in the past is a key issue as a National Association of Insurance Commissioners task force crafts a uniform system for states and insurers to deal with the issue.

The group is working intensely to have a first draft of a new model law ready for the NAIC summer meeting, scheduled for Aug. 17 in Chicago, according to Ben Seessel, a partner at Carlton Fields Jorden Burt’s Hartford office.

The critical issues that the new Unclaimed Benefits Model Drafting (A) Subgroup has identified is whether insurers should be fined for past misdeeds as well as made to immediately pay the proceeds of unclaimed insurance policies, or whether insurers should only be held accountable for failure to give the money to the states going forward.

In dealing with that issue, the subgroup is focusing on whether insurers should be held accountable for past actions only if it is established that they used the Social Security Death Master File (DMF) to remove people who had annuities with lifetime payouts but not in determining that life insurance benefits should be paid out, Seessel said.

Regulators have termed such practices by insurers “asymmetric,” that is, they used the DMF to search frequently to curtail annuity payments under contracts that provided lifetime payouts. But for life insurance, they checked the files much less frequently.

But Seessel said it is questionable if the retrospective application was constitutional and a legal interpretation should be requested. Those participating in the meeting said that, as a first step, the group would start by considering existing NAIC materials on the issue.

The second critical issue is whether the law should apply equally to larger and small insurers. The third is whether exceptions should be included for some life insurance policies, e.g., credit life insurance policies, which are exempted under a model law crafted by the National Conference of Insurance Legislators (NCOIL).

The template for the issues that should be included in the NAIC model law were proposed at a May 22 meeting of the subgroup. The committee planned to hear presentations from a variety of groups, such as the “lead states” (California, Florida, Illinois, New Hampshire, North Dakota, and Pennsylvania), as well as approaches proposed by New York; NCOIL; Oklahoma and Louisiana.

The lead state proposal includes the key terms of the settlement from 18 large insurers whom the California Insurance Department say constitute 61 percent of U.S. life insurance industry assets.

It would require insurers to conduct quarterly searches of the DMF against each insurer’s entire life and annuity business and retained asset accounts to locate deceased insureds, conduct thorough searches for beneficiaries and turn over or “escheat,” any unclaimed funds promptly to the states, Sutherland lawyers said.

The lead states have reached agreements with most large insurers, and have now turned their eyes on smaller states.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

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InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].