Filed Under:Life Insurance, Life Products

NCOIL Unclaimed Property Model Law Mandates Use of Death Master File

WASHINGTON—The National Conference of Insurance Legislators Sunday passed a resolution supporting a model law dealing with unclaimed property policies, but only after an apparent two-day mad scramble by industry lobbyists and lawyers that resulted in major changes to the original proposed model law.

At the same time, officials of the American Council of Life Insurers said problems remain, and that they will likely seek changes in the proposed model as state legislatures start to deal with the issue starting in January.

Whit Cornman, an ACLI official, said smaller insurers regard the proposed model as a “setback” because it mandates use of the Social Security Death Master File, or its equivalent.

Many insurers, especially smaller insurers, don’t use the DMF, Cornman said.

An industry lawyer who declined to be named because she represents clients caught up in the probe said the original model law proposed at the start of the NCOIL meeting was a “ disaster.”

The original model law was inconsistent with unclaimed property laws and unfair claims practices law; adopting the methodology for doing DMF matches required by the New York Department of Financial Services in its July request for information, the lawyer said.

This is inconsistent with the software being used by Verus, which is examining the files of insurers in 38 states after being armed with state police powers by insurance regulators in those states.

For example, the lawyer said, the original NCOIL model adopts date of death as dormancy trigger, which is not in the unclaimed property laws; and giving beneficiaries only 45 days to file a claim, without any empirical evidence of average time it takes beneficiaries to file claims.

The lawyer said industry has not reviewed the final version, and cautioned that major concerns may remain. The lawyer said whether industry will support the model law will have to await a comprehensive analysis of it.

NCOIL’s executive committee adopted the revised model Sunday, during the conclusion of its annual meeting in Santa Fe.

It came only two days after NCOIL’s Life Insurance & Financial Planning Committee amended and then approved the model, which had only been drafted a few weeks earlier.

The revised model would require life insurers to match Social Security death master file records, or an equally comprehensive service, with in-force life insurance policies and retained asset accounts each quarter.

The model law also calls for timely insurer efforts to confirm an insured or account holder’s death, locate any beneficiaries, and provide claims forms and instructions.

In the event that benefits go unclaimed, the model provides clear procedures for life insurers to notify state treasury departments and escheat the funds, per unclaimed property laws.

NCOIL’s action comes as pressure on insurers appears to be escalating, with state attorneys general and comptrollers moving to the forefront on the issue, apparently out of concern that state insurance regulators aren’t moving fast or aggressive enough on the issue.

For example, New York’s attorney general and comptroller Nov. 3 moved to pre-empt the state’s insurance regulator by initiating a new probe.

Also joining the fray was Minnesota, which sent out letters on Oct. 28 to at least 12 insurers in the state demanding a “comprehensive review” of their companies’ internal records and policies concerning the processing of death benefits.

In Minnesota, the state’s Commerce Commissioner joined with state Attorney General Lori Swanson in undertaking the probe.

California has been investigating the issue since 2008, and the National Association of Insurance Commissioners established a task force in July composed of 10 states that are investing the issue.

And, insurers in approximately 38 states are undergoing audits being conducted by a Connecticut firm, which has deputized by the insurance departments in those states to use government police powers to access insurer records.

At a hearing in Florida in July, Kevin McCarty, the head of the state’s Office of Insurance Regulation, calculated that insurers nationwide could end up paying up to $1 billion to settle the probe before it is all over.

In the latest event, MetLife in October said it would take a $125 million charge against earnings to deal with the issue MetLife said its action was based on an internal probe begun before New York state insurance officials began its investigation.

At its fall meeting in early November in suburban Washington, D.C., the NAIC heard a report on the issue from the Center for Insurance Research that recommended certain actions, but it took no concrete steps at that time to deal with the issue.

NCOIL officials said they acted in anticipation of the January start of state legislatures’ annual sessions.

“At present, insurers are not using the DMF consistently to learn of policyholders’ deaths, leaving beneficiaries of life insurance policies in the dark and causing death benefits to remain in limbo,” said Rep. Robert Damron, D-Ky., NCOIL past president.

Damron said that life insurers need to utilize technology at hand, such as the DMF, “to close regulatory gaps and to better serve life insurance consumers.”

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