Filed Under:Life Insurance, Life Products

NAIC and NCOIL Disagree over Unclaimed Property

From the Washington Bureau

Florida insurance commissioner and incoming NAIC president Kevin McCarty (File, AP)
Florida insurance commissioner and incoming NAIC president Kevin McCarty (File, AP)

The model law for handling unclaimed assets as passed by the National Conference of Insurance Legislators is getting pushback from state insurance regulators, who say the model law will not work for handling existing claims.

Insurers must “complete regulatory and unclaimed property audits,” said Jack McDermott, director of communications for the Florida Office of Insurance Regulation.

Kevin McCarty, Florida insurance commissioner, is coordinating the National Association of Insurance Commissioners’ response to the unclaimed property issue. McCarty is also the incoming NAIC president.

McDermott’s comments on behalf of McCarty and the NAIC comes amid signs that the new NCOIL proposed model law is just adding to the confusion revolving around the system that must be used by insurers to comply with so-called escheat law, which deal with finding beneficiaries of unclaimed property, or turning the funds over to the states.

Moreover, industry officials, trade groups and some industry lawyers say the new model law just adds to the confusion surrounding resolution of the issue.

Whit Cornman, a spokesman for the American Council of Life Insurers, said that the ACLI believes that life insurers adhere to the letter and spirit of all laws and regulations pertaining to unclaimed property. At the same time, he added, unclaimed property requirements themselves across the country are unclear.

“Consistent with our industry’s commitment to policyholders and beneficiaries, we are prepared to work with all stakeholders in the development of clear and uniform standards for unclaimed property reporting going forward,” Cornman said.

The key issue is a determination made in June by California that insurers were using “an asymmetrical approach” to settling death claims when policyholders die. California used Verus, a Connectucut-based auditing firm, to conduct its unclaimed life insurance audit. Florida has also used Verus to conduct its own audits regarding unclaimed life insurance benefits.

Since then, New York’s Department of Financial Services has come up with a different approach, the New York attorney general and comptroller’s office have launched an independent investigation, and Minnesota is also asking for different data in requiring its insurers to report their compliance with state law.

An industry lawyer, who asked not to be named, said the NCOIL model just points up the conflicting obligations insurers are being asked to comply with.

The lawyer said, “What are insurers supposed to do, and what is the standard?”  

McDermott, for example, said that despite the new NCOIL model law, “state insurance commissioners will continue to address these issues through a market investigation and settlements or administrative actions against insurers that may have violated existing law.”

The new NCOIL model law on the issue was approved by the group’s executive committee Sunday. 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 still must be approved by the states.

The finding was that insurers, most of them using the Social Security Death Master File, acted immediately to stop payments on annuities that required periodical payouts.

But, they didn’t use the DFM as promptly in handling claims involving life insurance and retained asset accounts in cases where the beneficiaries didn’t immediately file claims.

California and Florida have settled with John Hancock on the issue, and 38 states are auditing insurers for their compliance with so-called escheat law, with deal with finding beneficiaries of unclaimed property, or turning the funds over to the states.

McDermott said the NAIC Task Force is in the process of conducting examinations of the top 40 companies which represent 92% of the industry’s market share.

“We understand why NCOIL is attempting to clarify state laws to require the use of the Social Security Death Master file by life insurers,” McDermott said.

However, he said, “we are concerned that insurance companies will likely try to use the NCOIL model as a reason the states should not complete regulatory and unclaimed property audits. This will not work.”

He said insurers are trying to characterize the conduct they have engaged in as not violative of existing law, but the companies are saying that they will comply with future laws or regulations that require them to use the death master file to identify deceased policyholders whose families have benefits due or in many cases, overdue for years.

“The NCOIL model may play into this argument,” he said.

He cited the Florida law, which says that, “Notwithstanding any other provision of law, if the company learns of the death of the insured or annuitant and the beneficiary has not communicated with the insurer within four months after the death, the company shall take reasonable steps to pay the proceeds to the beneficiary.”

He said many of the companies “learned of the death” years ago, but are still holding the proceeds of the policy because they do not have a traditional claim form and death certificate.

He said some ran the death master file from the Social Security Administration against their annuity policies so that they could stop making annuity payments, but did not take reasonable steps to pay the beneficiaries of the life insurance policies or turn over unclaimed property to the state.

McDermott said that in addition, the settlement that Florida has obtained with John Hancock, along with over 30 state unclaimed property departments, requires more than just an exact match of social security numbers. 

He said it requires the company to compare names, dates of birth and other information to try to actively identify insureds. 

McDermott said that as a result of this 2011 settlement, over $88 million dollars has been identified already and remitted to either the beneficiaries or the unclaimed property departments of the various participating states.

He said the state insurance regulators who are participating in the unclaimed property investigations will either reach a similar settlement with other companies or will file administrative actions to compel companies to actively search for beneficiaries as required by existing state law.

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