John Hancock Life Insurance Companies (Hancock) is the latest group of large insurers to enter into a multistate settlement involving its claims investigatory practices regarding the use of the Social Security Administration’s Death Master File (DMF) to identify deceased insureds and pay death claims to beneficiaries. The Hancock settlement will result in a payment of $13.3 million to multiple jurisdictions and will require the insurer to modify its current procedures for the payment of claims. Similar multistate settlements have been reached with AIG, Nationwide, MetLife and Prudential.
These regulatory enforcement actions are being negotiated in the midst of the enactment of new laws and regulations governing the manner in which life insurers should investigate and pay claims. It is expected that other settlements will be reached as market conduct examinations of other life insurers are initiated or ongoing examinations are concluded. This combination of enforcement and regulatory actions can make it difficult for life insurers to determine “best practice” guidelines; particularly where the terms of these regulatory settlements differ from new or proposed laws and regulations.
The National Conference of Insurance Legislators recently adopted an amended version of its Model Unclaimed Life Insurance Benefits Act (Model Act), which was originally adopted in November 2011. The original Model Act required an insurer to perform a comparison of insureds’ life insurance policies and retained asset accounts against the DMF at least quarterly. The amended version, adopted in July 2012, mandates that an insurer must perform this search at least semiannually.
To date, only a few states have enacted laws similar to the Model Act – some of these laws require such comparison to be conducted on a semiannual basis and others require the analysis to be performed on a quarterly basis. By contrast, the Hancock settlement requires a monthly search of the DMF. Given these varying standards, life insurers need to be vigilant in monitoring the latest requirements being imposed through these multistate settlements, as well as through new legislative or regulatory measures, to develop “best practice” procedures that will most closely encompass the rules being imposed by regulators and that can be applied on a nationwide basis.
While the enforcement actions can cause confusion where their terms are inconsistent with new or proposed laws or regulations, they can provide some measure of clarification in areas left unaddressed by legislation or regulations. One such area is found in what constitutes a “match” in the DMF as to an insured. Specifically, the Model Act requires an insurer to identify potential “matches” of its insureds to the DMF. However, the Model Act does not define the term “match” or otherwise provide guidance on methodology to be used to determine whether a “match” exists. The MetLife and Nationwide settlements provide some standards to follow in evaluating whether a “match” has been attained. This type of information can serve as a useful guidepost to life insurers in creating detailed compliance plans to be followed by claims personnel in performing their investigative functions.
It is clear that regulators will continue to focus on the many issues surrounding the identification and payment of unclaimed life insurance benefits. As a result, life insurers will have to adapt their claims practices and procedures in an uncertain environment where the standards are fluid and are being created through multiple sources. Wilson Elser is monitoring the various developments in this area and can assist life insurers with compliance plans to address their needs.