Nine years ago, the Life and Health Insurance Foundation for Education (LIFE) established September as Life Insurance Awareness Month to bring visibility to the importance of life insurance in helping consumers protect themselves and their families financially. It is also the perfect time for insurers and independent agents to ensure they are up to speed on crucial industry issues that affect their own financial wellbeing.
Unclaimed property is one of these topics. Although it has gained notoriety in recent months, largely due to the high-profile settlements by some of the nation’s largest insurance carriers, unclaimed property oftentimes takes a back seat to other compliance issues. But it is critically important, as the stakes are raised ever higher and the rules of the game continue to change.
There is no time like the present for advisors to make sure they are adequately informed on the issue and prepared to face an unclaimed property audit. Here are three “must-do” recommendations for getting started.
1. Review the regulatory environment and new legislation.
Never before has there been such drastic change in the life insurance industry in regard to unclaimed property. Traditionally, life insurance policies for which there have been no death claims, but whose owners are deceased, have not been considered “unclaimed,” but that is changing — fast.
Insurers are now under fire from state regulators for the failure to proactively determine if policyholders are deceased and notify beneficiaries that they are entitled to proceeds from life policies. This had led to increasingly intense and frequent audits and market conduct survey examinations, as well as new legislative regulations, including the creation of the Unclaimed Life Insurance Benefits Act by the National Conference of Insurance Legislators (NCOIL).
Initially adopted in November 2011, and more recently amended and unanimously re-adopted in July 2012, the act requires a comparison between in-force life insurance policies and retained asset accounts against the Social Security Administration’s Death Master File (DMF) or a similar service on at least a semi-annual basis. According to the act, insurers are required to identify decedents and complete a good faith, documented effort to confirm the death of the insured and determine whether benefits are due within 90 days. If benefits are due, the insurer must use good faith efforts to locate the beneficiaries and provide appropriate claim forms or instructions to each beneficiary to make a claim, including the need to provide an official death certificate if applicable under the policy.
The act serves as a model law for individual state legislation. In April 2012, Kentucky became the first state to enact a law based on the NCOIL model, and in May 2012, Maryland, New York and Alabama each followed suit.
See also: New York Forges Unclaimed Property Rule
These beneficiary location regulations affect all insurers who do business in these states, not only those that are geographically based there, and enforce the commonly held notion that this is just the beginning of state- and industry-wide adoption in the near future.