Tighten Rules for Carriers and Unclaimed Assets, NAIC Says

The National Association of Insurance Commissioners’ draft law prescribes several new parameters for insurers to hunt down unclaimed assets in life insurance and annuity contracts.

The model law is known as the Unclaimed Life Insurance and Annuities Model Act and the comment period ends Dec. 14.

The draft law, which serves as a model for other state regulators to eventually adopt, will most likely undergo revisions once the industry has a chance to comment.

It is designed to establish procedures around identifying people whose deaths require insurers to pay benefits in accordance with the terms of the policies, annuity contracts or retained asset accounts. It also establishes procedures for locating and helping beneficiaries with the claims settlement process, the NAIC said.

Proposing a regulatory framework to retrieve unclaimed assets has been under consideration since late 2013. In drafting the proposal, the NAIC researched the life settlement model adopted by the National Conference of Insurance Legislators (NCOIL).

NAIC regulators also took into account comments from the National Alliance of Life Companies, a trade group of small and midsized life and health insurers. Small insurers and fraternal life insurance societies argue that lengthy searches are expensive and burdensome.

Over the past three years, more than a dozen large insurance carriers have paid fines to settle disputes as part of a multistate settlement with regulators.

Regulators alleged carriers used Social Security Administration’s Death Master File only to pay claims for variable annuities with lifetime payment options when policyholders died, but not to find beneficiaries of life insurance policies who had not filed claims.

In 2012, West Virginia Treasurer John D. Perdue sued 63 companies on the grounds that insurers not only withheld life insurance proceeds unclaimed by policyholders, but that the carriers had made no effort to dig through the Death Master File to find out of policyholders had died.

In January 2013, New York regulators announced that its investigations over a two-year period had resulted in more than $665 million being paid to life insurance beneficiaries unaware that they were entitled to the funds.

Unclaimed assets, which originally belonged to the policyholder or his or her beneficiary, are eventually turned over to a state’s unclaimed property trust.

Under the NAIC’s draft proposal, insurers shall compare all in-force policies, annuity contracts and retained asset accounts in its records against the complete death master file.

Insurers must then compare in-force and lapsed policies against any updates to the death master files with a frequency of no less than twice a year to identify potential matches.

“If the insurer conducts death master file searches for any of its other lines of insurance business more frequently than semi-annually, then the insurer must conduct a death master file search for all lines of business with the same frequency,” the draft law states under Section 4 outlining insurer conduct.

Insurance carriers that inherit life insurance policies or annuity contracts through a merger “shall compare all newly acquired policies and annuity contracts within six months from the date of acquisition against the complete death master files,” the draft law states.

The NAIC’s draft model law requires that carriers conduct searches to account for common nicknames, initials used in lieu of first or middle names, use of a middle name, compound first and middle names and interchanged first and middle names.

Also, searches must include compound last names, maiden or married names, “and hyphens, blank space of apostrophes in last names,” as well as transpositions of the month and death portions of a data of birth.

Under the NAIC proposal, life and annuity carriers have a maximum of four months between the time a carrier learns that a policyholder has died to begin a “thorough search” of unclaimed assets. The search shall be completed within a year.

Carriers will not be able to charge beneficiaries or “other authorized representative” for fees or costs in connection with a death master file search.

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 [email protected].