Cash-starved state governments are hiring more unclaimed property contract auditors to help them look for what amounts to spare change hidden in the nation’s financial services sofa cushions.
State insurance departments bill unclaimed life insurance property audits as a chance to surprise beneficiaries with unexpected blasts of cash. In some cases, that is what happens.
But figures from the National Association of Unclaimed Property Administrators (NAUPA), Lexington, Ky., show that state unclaimed property administrators typically pay only about 5% of the $50 billion in unclaimed property they manage to the owners each year.
While states are taking care of unclaimed life property, they get to use it.
“In today’s environment, states are actively pursuing unclaimed property as a means to mitigate budget shortfalls,” Duff & Phelps, Chicago, says in a promo for its unclaimed property portal.
Moody’s Investors Service, New York, predicts the current wave of life insurance property audits will cost the life insurers it audits hundreds of million dollars. If all U.S. life insurers make $1.3 billion in extra unclaimed property-related payments this year, that would amount to 0.1% of state governments’ $1.3 trillion in annual expenditures–the equivalent of a worker who earns $50,000 a year feeding $50 in loose change into a coin counter.
If those mislaid pennies are out there, contract unclaimed property auditors like Affiliated Computer Services Inc., Dallas, and Verus Financial L.L.C., Waterbury, Conn., are promising to bring it in.
“Unclaimed,” Verus says on its website, “but not lost.”
Verus made headlines in April by providing California Comptroller John Chiang with data he used to negotiate a settlement with John Hancock, Boston, that could cover about $20 million in unclaimed insurance assets. Nevada Treasurer Kate Marshall says 35 states and the District of Columbia are now using Verus to audit unclaimed property at 20 insurers.
Caroline Marshall, the Verus general counsel, said confidentiality agreements prevent the firm from giving interviews.
The firm’s website indicates that Jeffrey Drubner, the president, is not just another guy in a green eyeshade: He spent nine years working as a special agent at the Federal Bureau of Investigation.
Valerie Jundt, the Bismarck, N.D.-based managing director of Keane Unclaimed Property, a firm that will be helping insurers respond to the unclaimed property audits, said Verus seems to have done a good job of combining unclaimed property expertise with life insurance expertise –and of attracting attention to unclaimed property.
“I can see everyone wanting to hang out a shingle and become a contract auditor,” Jundt said.
State insurance regulators have been hiring outside vendors to help them review insurers since the 1800s. In 1878, for example, John Smyth, a former New York insurance superintendent, had to fight off allegations that he had rewarded political allies by making insurers pay them for unnecessary examinations.
The “National Convention of Insurance Commissioners”–the organization that later became the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., addressed examination practices in the 1910s. The Fraternal Monitor reported in 1922 that, before the convention had stepped in, examinations were often a scheme to subject a “hapless company” to “examiners galore, running up bills of ten to fifty dollars a day for each man.”
Today, insurance companies still have concerns about exam costs, but any outside examiners are usually paid on an hourly or per-job basis, according to George Keiser, North Dakota state representative and the president of the National Conference of Insurance Legislators (NCOIL), Troy, N.J.
State unclaimed property operations are usually part of state treasury, revenue or comptroller agencies.
The National Conference of Commissioners on Uniform State Laws, Chicago, developed the first unclaimed property model in 1954 and the newest version, the Uniform Unclaimed Property Act (UUPA), in 1995. UUPA covers life and annuity property as well as many other types of property.
Only 15 states and the U.S. Virgin Islands have adopted the UUPA model, and unclaimed property rules tend to vary greatly from state to state.
NAUPA promotes use of a standardized unclaimed property reporting form for insurers and other unclaimed property “holders,” but NAUPA and the Unclaimed Property Professionals Organization (UPPO), New York, the group for corporate unclaimed property advisors, have not developed a widely accepted accreditation or professional designation program.
State unclaimed property operations often pay contract auditors “contingency fees”–fees contingent on the auditors’ success at finding unclaimed property.
States have been auditing insurance claimed property since at least the 1960s, and they have been using contract auditors to do the job since at least the 1980s.
Jundt, who was the unclaimed property administrator for the state of North Dakota from 1984 to 1996, said the number of contract auditors has increased to about half a dozen today, from one or two in the 1980s.