Fundamental changes to insurers' unclaimed property practices and obligations have been brewing in recent years, coming to a head in the following well-publicized developments over the past month:
- Public hearings by state unclaimed property and insurance regulators into insurers' operational practices, including the extent to which they use Social Security Death Index ("SSDI") data to determine whether an insured or annuitant is dead or alive for benefit payment purposes.
- Two settlement agreements with a major life insurance group (collectively, the "Life Insurer") documenting the resolutions of (i) a multistate unclaimed property audit of the Life Insurer; and (ii) a joint inquiry by Florida's Attorney General, Department of Financial Services, and Office of Insurance Regulation into the Life Insurer's compliance with Florida's unclaimed property and insurance laws. Press releases by California and Florida announcing these settlements, with links to the settlement agreements themselves, are available here and here .
- The California Insurance Department announcing (available here) that it has commenced market conduct examinations of ten large life insurers, focusing on whether they have engaged in unfair practices with regard to the payment of death benefits under life insurance policies and annuities.
- The NAIC announcing (available here) that it has formed a special task force to help coordinate regulatory investigations involving the claim settlement practices of life insurers.
At the heart of these developments is the question of what triggers insurers' obligation to pay life and annuity benefits as well as when insurers must pay over any unclaimed benefits or dormant funds in retained asset accounts ("RAAs") to state unclaimed property administrators. Special focus has been directed at insurers' use of the SSDI database to terminate annuity benefit payments but failing to use the same information to facilitate the payment of claims on life policies.
The two settlement agreements with the Life Insurer mandate that it adopt the following operational changes going forward:
- With regard to death benefits, to run comparisons, at least quarterly, of its in-force life policy insureds and annuity contract owners and annuitants against the SSDI database to identify potential death matches, and then take specific steps to determine whether death claims are payable and, if so, promptly pay those claims or ultimately remit dormant death benefits to state unclaimed property administrators (even if death claims have not been submitted).
- With regard to annuity benefits, to adopt revised policies and procedures to better ensure that annuity benefits are paid after the annuity contract's maturity date or ultimately remitted to state unclaimed property administrators.
- With regard to RAAs, to adopt revised policies and procedures to better ensure that RAA proceeds are paid to owners or ultimately remitted to state unclaimed property administrators.
The settlement agreements also address the findings of an 18-year audit of the Life Insurer's unclaimed property filings. The auditors compiled lists of allegedly unpaid death and annuity benefits and dormant RAA monies, and the settlement agreements obligate the Life Insurer to promptly pay these benefits, plus interest, or remit these amounts to state unclaimed property administrators, subject to certain exceptions identified in the settlement agreements.
In light of the current regulatory activity, insurers would be well advised to proactively review their own death benefit payment practices to determine if any unclaimed benefits have "matured" as well as their overall unclaimed property practices and procedures. In addition, plaintiff class action lawyers perceive this as an area of opportunity, with the National Underwriter recently quoting a plaintiffs' firm as saying it is investigating potential violations of state consumer protection, insurance, and ERISA laws.