Filed Under:Your Practice, Regulatory

Clock ticking on access to Death Master File

The insurance industry — companies as well as regulators — are racing against time to ensure uninterrupted access to the Social Security Death Master File (DMF).

The problem stems from an obscure provision of the recent Budget Act which limits public access to the DMF effective March 26 and requires the Department of Commerce (DOC) to develop a certification program to allow persons meeting certain criteria to have continued access to the DMF.

State insurance regulators, led by Benjamin Lawsky, superintendent of the New York Department of Financial Services; the American Council of Life Insurers, on behalf of the industry; and a host of other financial services providers are working intensely to get the Office of Management and Budget, and the National Technical Information Service (NTIS) to publish an interim rule that would allow continued access to the file pending completion of a final certification process.

The issue was taken up last Friday by a National Conference of Insurance Legislators’ (NCOIL) Unclaimed Property Task Force studying changes to the model law dealing with unclaimed property.

The task force said that unless an interim rule is put in place, insurers may no longer have full access to the DMF, and it is unclear if and when full access will be restored to insurers.

“Because the Model Act requires that insurers run searches against the DMF, the Bipartisan Budget Act may render insurers unable to fully comply with the Model Act where it has been implemented by state law,” the task force said.

ACLI made the same point in a March 10 letter to the NTIS and the Office of Management and Budget (OMB). The letter urged the two agencies “to work together to ensure uninterrupted and prompt access to the DMF by users with legitimate business and fraud prevention purposes, such as life insurers and third parties,” and was signed by Dirk Kempthorne, ACLI president and CEO.

The issue is so critical that a new coalition has been formed to address the implementation of the DMF access provision.

Lawsky brought the issue to the attention of the Department of Commerce in a Jan. 22 letter. He noted the investigation by various state regulatory agencies dating back to 2008 which found that life insurers were using the DMF “asymmetrically,” that is, many insurers regularly accessed the DMF in order to promptly cease making annuity payments to individuals, but most insurers were not similarly accessing the DMF to determine whether death benefits under life insurance policies should be paid to beneficiaries.

As a result, Lawsky said, DFS said that insurers in the state were ordered to perform cross-checks of the DMF to identify life insurance policies for which no claims have been made, and to locate beneficiaries eligible to receive benefits.

In a recent follow-up letter, the Life Insurance Council of New York Inc., told DOC officials that lack of an interim rule ensuring uninterrupted access to the DMF by annuity providers could generate losses to insurers through fraud.

The letter said that, under current circumstances, an insurer would be expected to be notified of the death of the annuitant and so terminate the periodic benefit payments.

“In some instances, however, and for various reasons, the insurer is not notified,” the letter, signed by Thomas E. Workman, president and CEO, said.  “Thus, benefit payments continue to be remitted to the deceased annuitant’s account or address, and it is difficult to recover such payments when the annuitant’s death is discovered.”

A group of approximately 44 states have been checking the records of at least 19 large insurance companies and reaching settlements with them on this issue. State treasurers and insurance regulators are now setting their sights on smaller players in the industry, but lack of access to the latest DMF files could severely impact the ability of regulators to enforce the agreements, and, conversely, insurers to comply with them.

The Coalition for Implementation and Reform of the Death Master File was formed March 5. It will be comprised primarily of financial services companies, including insurance companies, annuity companies, pensions, credit rating agencies, charitable organizations and others that utilize the DMF in the course of their business, and to provide consumer financial services. Other members will include third-party vendors that access the DMF on behalf of these legitimate users of the DMF.

The Coalition will be managed by the American Continental Group (ACG), a public policy advocacy firm in Washington, D.C. ACG has been engaged for the past two and half years in Congress' consideration of legislation to restrict access to the Death Master File, including assisting in the development of needed legislative history when the DMF provisions were “prematurely added” to the Bipartisan Budget Act of 2013, the group said in a statement.

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