Who Will Benefit From Unclaimed Insurance Property Audits: Beneficiaries? Really?
In a series of aggressive evidentiary hearings in Florida and California involving MetLife and Nationwide, and in settlements with other insurers, state insurance commissioners, state CFOs and attorneys general are pressing new theories of unclaimed property liability on life insurers that, in the words of Florida’s Insurance Commissioner McCarty, could bring in “north of $1 billion” to state coffers and to beneficiaries. But just how much of that $1 billion will ever land in the hands of beneficiaries is an open question.
State regulators are claiming that life insurers are not doing enough to find out whether the insureds named on life insurance policies have died or to locate beneficiaries and settle claims when the insurance company learns, through matches with the Social Security Master Death File database or otherwise, that insureds have died. Using aggressive timeframes and untested legal theories, states are threatening life insurers to quickly turn over unclaimed property to state unclaimed property funds. But states are ill-equipped to assume the insurer’s responsibilities to pay the death claims.
In certain recent settlements, for instance, the insurer will receive a list of between 11,000 and 15,000 accounts per month over five or more months from the states’ auditor that are accounts the auditor has identified as escheatable. The company will have 30 days to review and object before it must begin the due diligence processes associated with the remittance of the life insurance policies and annuity contract proceeds to the states. In some cases, the states are not requiring the insurer to send a notification letter to the beneficiary, but are requiring the insurer to escheat the property to the states within sixty days of the end of the condensed due diligence period.
For over 100 years, insurers have followed careful procedures when paying death claims and have designed their systems to ensure that claims are paid correctly and in a timely fashion. As stated in the typical life insurance policy, an insurer will pay the proceeds of a life insurance policy to the designated beneficiary when the beneficiary presents a claim and proof of loss, usually in the form of a certified death certificate. In some states, insurers must pay statutory interest that begins to run from the date the insurer receives the completed claims; in other states, statutory interest runs from the date of death. In all states, the claims process is governed by various state insurance laws and unfair claims acts and states have conducted market conduct exams that have examined every facet of the claims process.
The payment of some death claims may be delayed for years after the date of death for a variety of reasons, such as a dispute among heirs and questionable circumstances surrounding the death of the insured, such as the beneficiary’s contribution toward bringing about the death. Or death may occur during the contestability period in the policy.
In all, the death claims process has worked well. In 2009, alone, life insurers made total payments to beneficiaries of over $59 billion, with total payments under all life insurance and annuity contracts totaling $375 billion.