Let’s pause for a second.
The announcement April 24 by state regulators of a settlement with Metropolitan Life of its unclaimed property practices, coupled with an announcement that the settlement could include the return of perhaps $700 million either to policy beneficiaries or to the states, raises more questions than it answers.
The first question it raises is whether states, desperate for revenues, are turning insurance companies upside down in their quest for any loose change, and, in the process, perhaps overdoing it.
Another question it raises is who is minding the store? In other words, probes of the unclaimed property practices of life insurance companies have occurred once each decade at least since the 1970s, but never before have yielded such potential revenues.
Where were the regulators before this? Did they completely miss the boat in examining insurance companies, or in not requiring them to impose policies and programs designed to appropriately handle claims before this?
In years of listening to regulators discuss their responsibilities in public hearings and documents, state regulators in their testimony also emphasized that their priority was consumer protection. The issue was repeatedly brought up by insurance companies and state regulators in governments in lobbying against allowing the Consumer Financial Protection Bureau oversight over insurance companies while the Dodd-Frank financial services reform law was being drafted.
The arguments by the states and their supporters in Congress obviously carried the day. Given the huge sums being talked about in the various settlements so far announced by state regulators with insurance companies over unclaimed property practices, did they mislead Congress in making the argument that insurance regulation should remain local?
A third question is whether various state agencies, in their quest to show taxpayers, governors and legislatures they are shaking the tree for every dollar, are seeking to outdo each other, with potential solvency implications for insurers already dealing with an unprecedented low interest environment?
Specifically, in two of the larger states, New York and California, and perhaps others, there appears to be a race to the bottom by insurance regulators, comptrollers, and, in New York’s case, attornies general, to outdo each other in coming down hard on insurance companies on their unclaimed practices policies.
For example, the New York Department of Financial Services, joined by Gov. Andrew Cuomo announced April 24 said an investigation into the unclaimed practices policies of the 172 insurers based in New York has resulted in 32,715 payments to consumers nationwide totaling $262.2 million, including 7,525 payments totaling $95.9 million to New Yorkers.
At the same time, some months ago, New York attorney general Eric Schneiderman said he was teaming with the state’s comptroller into an independent investigation of the unclaimed property issue. Plaintiff’s lawyers and other sources have confirmed that Schneiderman has subpoenaed the records of 10 of the largest life insurers in connection with this independent probe.
And, in California, insurance commissioner Dave Jones appears to have been forced to compete with state controller John Chiang for control over the investigation of the unclaimed property practices of insurers doing business in that state.
There have also been questions raised about the decision by the various states to allow an outside firm to conduct the actual examinations, and to write the software being used to peruse the books of the various institutions.
Some in the industry have voiced concerned that doing so inappropriately delegates state police powers to an outside firm.
Is this all self-defeating?
According to various sources, active investigations of at least 10 large U.S. insurers are underway by state regulators.
And, in announcing last year that they were undertaking the investigation, state insurance regulators said that up to 40 insurers doing business in the U.S. could be involved in the investigation, as a result comprising the vast majority of U.S. life insurance company assets.
There is no question that states are fighting for every dollar of revenue they can scrounge up as they deal with a weak economy having difficulty recovering from the worst downturn since World War II.
But, state insurance regulators’ primary job is ensuring the solvency of the insurers it regulates.
During the negotiations over the extent over the oversight federal regulators should have over insurance, the states assured the industry and Congress that they could do a better job of weighing enforcement with solvency.
Given the apparent current quest for every dollar, the credibility of the states in making that commitment is now in question.