October 7, 2011 - 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 The New York State Insurance Department Issues a Directive to Conduct Social Security Death Index Sweeps and the Rule 308 Letter. The Department has since extended the initial reporting deadline to October 31, and has provided additional clarification regarding the scope of the reporting requirement. See August 8, 2011 guidance and September 28, 2011 guidance.  

Scope of the initial reporting requirement:

The Department has clarified that cross-checks: "should be performed utilizing the name(s) of the person(s) (i.e., insured, annuitant or beneficiary, whichever applicable) whose death(s) would obligate the insurer for the payment of benefits under the policies, contracts or accounts." Matches to records in the SSA Master File with codes V (death was Verified by family or someone acting on their behalf) or P (Proof of death certificate) constitute a match for the purposes of the 308 letter. To the extent the life insurer uses the SSA Master File to cease making annuity payments under group or individual annuity contracts or to cease making death benefit payments under any payout (settlement) options made available for a group life certificate or an individual life insurance policy, the life insurer is responsible for determining whether any additional payments or benefits are due to a beneficiary in those situations.  

Contracts excluded from initial reporting requirement:

Life annuity and life insurance contracts that terminated prior to January 1, 1986, may be excluded from the initial report. Policies for which full death benefits, full maturity benefits, or full surrender benefits have been paid for all covered insureds may also be excluded, as may policies that have been freelooked or rescinded for a return of premiums. Also excluded are retained asset accounts that have been closed following payment of the entire account balance to the accountholder or beneficiary, as well as policies, contracts or accounts for which benefits have escheated pursuant to state unclaimed property statutes. In addition, the Department has recognized exemptions for certain group annuity and life insurance contracts, as well as for active employees insured under certain payroll-funded, and employer-funded life and annuity contracts if specified conditions are met. Any insurer excluding active employees under individual and group life insurance policies or annuity contracts from the cross-check must include in the initial report a description of the individual and/or group business being excluded, including details about the business as specified by the Department in its September 28 guidance.  

The Department stated that, based on its review of the initial reports, it may require additional pre-escheatment procedures for locating beneficiaries and payees, and may also require an insurer to perform additional cross checks if it deems an insurer's controls over excluded policies and annuities are insufficient. The Department has also stated that additional guidance regarding the format and method of secure delivery for the initial report is forthcoming.

These pronouncements by the Department may also provide useful guidance to non-New York admitted insurers that are evaluating their own benefit payment practices.