State insurance department reviews of life insurance claim payment practices “will likely lead to financial settlements or fines totaling hundreds of millions of dollars,” a rating analyst says.

Neil Strauss, a senior credit officer at Moody’s Investors Service, New York, gives that assessment in a comment on New York state’s move to require life insurers to use the Social Security Death Master File to identify life insurance policy insureds who have died.

The New York announcement is “credit negative as it adds reputational risk and financial costs to the life insurance industry,” Strauss says.

Moves to address concerns about possible “unclaimed property” problems in New York and elsewhere could lead to enough new costs to lead to modest reductions in insurers’ profits, Strauss says.

“We continue to believe that the dollar amounts will not be material from a credit perspective, considering that the industry maintains over $300 billion of surplus and statutory income was about $28 billion in 2010,” Strauss says. “However, negative headlines related to this matter will persist until regulators complete their probes, both sides reach settlements and new procedures are in place.”

- Allison Bell

Other unclaimed property coverage from National Underwriter Life & Health: