On July 5th, the New York State Insurance Department announced that all New York authorized life insurers have been sent a Section 308 letter requiring them to initially report by September 30th on the effectiveness of their current procedures for processing death claims. See July 5th News Release . The Department is concerned that life insurers may not be implementing "reasonable standards for investigating claims and locating beneficiaries." Effectively recognizing that no New York insurance law or regulation specifically requires insurers to determine if death benefits are payable, the Department also announced that it will be amending New York's unfair claims practices regulations to require insurers (i) to perform regular cross-checks for unpaid death benefits by using the latest version of the SSA Death Master File ("SSDI"), and (ii) to request more detailed policyholder and beneficiary information, such as social security number and address, to facilitate identifying deceased policyholders and locating and making payments to beneficiaries.
Through its Section 308 letter, the Department is directing insurers to report on how many death benefits they have not paid because they did not use the official government list of deaths to promptly indentify when policyholders died. While Section 308 of the New York Insurance Code merely permits the Department to require insurer reports, the Department nonetheless in its Section 308 letter instructs New York authorized life insurers to:
- Cross-check all of their life insurance policies, annuity contracts and retained asset accounts, including group policies for which they maintain detailed insured records (collectively, "Life Business") against the SSDI or an equivalent database. The period covered should extend back as far as each insurer's electronic records will permit.
- Submit an initial report by September 30, 2011 that includes a narrative summary of the cross-check procedures, the overall results (including number of matches and their resolution status), current procedures used to locate beneficiaries, and a detailed listing of any death benefits paid as a result of the cross-check.
- After matches are identified, submit monthly interim reports commencing October 31, 2011 and a final report by no later than March 31, 2012 that updates (i) the actions insurer has taken to investigate the matches, and (ii) the procedures implemented to locate beneficiaries and make payments where appropriate. These reports must also update the information contained in the initial report as appropriate.
The Section 308 letter advises that the records underlying these reports are subject to Department examination. The letter also instructs New York authorized life insurers to preserve all related documents and records until notified otherwise.
As insurers take action in response to Section 308 letters, some considerations include:
- The mechanics for conducting SSDI cross-checks. This includes the number of items to be matched - i.e., social security number, last and first name, address, birth date, etc. - and the level of matches - i.e., full matches or partial matches.
- If an insurer outsources this function to a third party service provider, the extent of insurer oversight and the extent to which the insurer may wish to review the providers' matching criteria.
- The mechanics for identifying whether death benefits are payable when matches are found - i.e., did the policy lapse prior to the death, is the policy a joint survivorship policy and the second death has not yet occurred, etc.
- Creating organization-wide procedures for SSDI cross-checks and beneficiary follow-up, or document the rationale for different procedures between business units or statutory entities to the extent unique considerations justify or demand divergent approaches.
- Reviewing and modifying business practices relative to collecting social security number and address information for owners and beneficiaries on a going forward basis, for new and existing business.