By Arthur D. Postal
WASHINGTON – The Sun Life Companies of Canada has settled allegations by state insurance regulators that its U.S. subsidiaries used the Social Security Death Master File (DMF) “asymmetrically,” that is, only to take claimants for variable annuities with lifetime payment options off the rolls when they died, but not to find beneficiaries of life insurance policies who had not filed claims.
Under the settlement, the Sun Life Companies will pay $3.2 million to state insurance agencies in Florida, which served as the managing lead state, California, Connecticut, Illinois, Michigan, New Hampshire, North Dakota and Pennsylvania. Sun Life has also agreed to implement business reforms correcting this practice.
The settlement agreement requires the company to implement the following business practices and reform measures:
-- Compare all company records against the DMF Update File every month and against the complete DMF file at least annually to identify matches for potential unclaimed death benefits.
-- Provide quarterly reports to the lead states about the implementation and execution of the requirements of the Agreement for 36 months following its conclusion.
-- Agree to a follow-up examination by the Office to determine compliance 39 months following the conclusion of this Agreement.
The SunLife subsidiaries involved include the Sun Life Assurance Company of Canada, Delaware Life Insurance Company (formerly known as Sun Life Assurance Company of Canada (U.S.)), Independence Life and Annuity Company, Professional Insurance Company, Sun Life & Health Insurance Company (U.S.), and Delaware Life Insurance Company of New York (formerly known as Sun Life Insurance and Annuity Company of New York).
The Florida Office of Insurance Regulation (OIR) said the settlement was the 14th multi-state settlement dealing with this investigation, which was launched in 2008 by California state comptroller John Chiang.
Kevin M. McCarty, Florida insurance commissioner, said in a statement that the multi-state national project has resulted in the return of more than $1 billion to beneficiaries directly by the companies and more $1.7 billion delivered to the states’ unclaimed property bureaus, which continue efforts to locate and pay beneficiaries.
Some insurers, including MetLife, have agreed to turn over the assets to state authorities of thousands of small face value or “industrial policies” sold dating back to the 1960s, but which were not claimed, McCarty said. During this period, owners were not required to include their Social Security numbers.
In addition, the insurers have to pay the cost of outside vendors working with states to do the audits. There are three auditing firms involved, and the audits can cost as much as $3.2 million per insurer.
McCarty said state insurance regulators have either reached settlements or concluded the investigation of 16 of the top 40 companies constituting 60 percent of the total market. Efforts continue to be focused on the examination of the remaining 24 insurers.
However, a chart compiled by a law firm which has represented a number of clients on this issue indicates that this is at least the 20th settlement reached either by insurance regulators or state unclaimed property agencies, such as Comptroller Chiang.
The latest settlement comes as regulators and unclaimed property administrators apparently are turning away from investigations and settlements to focusing on writing legislation that clearly establishes their authority to conduct the settlement.
At the recent American Council of Life Insurers annual meeting in Washington, Mary Jo Hudson, a former Ohio insurance director and a partner at Bailey Cavalieri, in Columbus, said, said the focus has shifted to legislation. Today, Hudson added that a few additional settlements of long-pending market conduct examinations “are possible, but they do not alter my earlier observation. … Clearly, the pace of these actions has subsided significantly, and new examinations have not been opened.”
Instead, she said, state regulators are pressing a 2015 plan to develop a Model Law on unclaimed benefit issues through the NAIC A (Life Insurance) Committee at next week’s NAIC meeting in Washington, placing the regulatory focus on developing national standards through appropriate legislative channels rather than regulation by settlement agreement.
Also, the National Council of Insurance Legislators (NCOIL) has proposed model law already adopted by 16 states that clearly establishes their authority to promptly gain the proceeds of life insurance policies that have not been claimed by beneficiaries.
At the same time, the NAIC Investigation of Life Insurance and Annuity Claims Settlement Practices Task Force will meet in closed session at the NAIC meeting next Tuesday to discuss the status of current investigations of companies being examined for potential unclaimed properly liability.
Arthur D. Postal has covered regulatory and legislative issues for more than 30 years in Washington, D.C. He can be reached at [email protected].
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