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Regulation and Compliance > State Regulation

Illinois Regulator Says Insurers Overlooked Death Claims

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NU Online News Service, Nov. 20, 3:33 p.m. – Examinations of two companies by Illinois insurance regulators have found that death claims on “thousands” of policies nationwide were not paid because those companies did not check to see if deceased insureds owned policies other than the contracts claims were filed against.

Illinois Insurance Director Nat Shapo says the companies, which he declined to name until reports are released, suggested a “high incidence” of unpaid benefits, although he adds that at this time, there is “no evidence that [these incidences] are deliberate.”

The death claims under scrutiny were made in the last decade, Shapo says.

An agreement is complete with one company for payment of any claims plus interest, according to Shapo. A decision on whether to impose a penalty has not yet been made, he says.

Shapo says that although the examinations focused on books of industrial policies–typically policies with small face amounts–the issue might extend to other types of policies. The spotlight is currently on small face amount policies, but the problem could also exist elsewhere, he says. Small face amount policies are typically considered those with total benefits of $15,000 or less.

It is also a “race neutral” issue, Shapo contends.

A regulation is currently being developed in Illinois to require companies to search for multiple policies. It could be enacted by other state insurance departments.

“It is an obligation [of companies] to seek out payment of beneficiaries even when claims are not filed,” says Shapo. “We are saying that it is a terrible shame as well as being a regulatory issue if companies have information that beneficiaries should be paid and have failed to do so.

“We are going to aggressively seek to pass a regulation that spells out how companies are expected to search their available records,” he says.

Initial details of the regulation that Shapo hopes to have in place by the spring, call for a search of the name of the insured and any nicknames provided by a claimant for a period of three years before and after the birth date of the insured. The search would encompass each day of that six-year window.

The issue of a multi-year search is considered important to regulators because they say that during the race-based policies investigation they came upon situations where insureds were often written a policy based on an age that did not reflect their true age. So, for instance, a 40-year-old man would be written as a 45-year-old man and, consequently, pay higher premiums.

Shapo says that he does not want the search to result in “Nat Shapo’s Thesauraus of Nicknames,” but rather to include names and nicknames that could reasonably identify an insured.

Linda Lanam, vice president and chief counsel-state relations, with the American Council of Life Insurers, Washington, says it is very important that any regulations put in place have uniform requirements for searches to minimize unnecessary data systems costs.

Lanam says that initially it was thought that searching every day within a six-year time frame would be problematic but that more input from systems experts is needed to determine how much work would need to be done to make systems compliant to such a requirement.

Scott Cipinko, executive director of the National Alliance of Life Companies, Rosemont, Ill., says the problem is broader than a small face amount issue.

“It is important to find people,” Cipinko adds. But he expresses concern over the scope of a six-year search and the cost to companies to conduct such searches.


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