The little-known auditing firm seemingly appeared out of nowhere to revamp the manner in which states, carriers and even independent agents and brokers navigate the unclaimed property landscape. Throughout much of 2011, news stories repeatedly surfaced of how insurers were brought to heel over life insurance monies they had long owed policyholders but had failed to pay.
The changes Verus brought to the unclaimed property world are profound. On the regulatory front, the National Conference of Insurance Legislators (NCOIL) formulated a model law states are looking into adopting; The National Association of Insurance Commissioners (NAIC) formed the NAIC Investigations of Life and Annuity Claims Settlement Task Force and a once little-known tool known as the Social Security Death Master File emerged to stand at the forefront of unclaimed property due diligence.
At the same time, high-profile multi-hundred million dollar settlements by industry behemoths such as American International Group, Prudential, MetLife, Nationwide and Manulife Corp.’s John Hancock have taken place with little resistance from these well-funded giants. While the huge carriers settle, State Attorney Generals have started poking around and class action suits by individuals against insurers seem to position themselves as the next chapter of the unclaimed property saga.
So, who is Verus and how have they been able to bring about these monumental changes? Are they simply a mercenary outfit looking to shake loose change from the insurance industry, as its critics contend? Or is Verus engaged in something more complicated, more nuanced and more profound?
Searching for truth
How could a firm nobody had heard of a few years ago have affected such acute change to the life insurance industry’s biggest carriers? The Waterbury, Conn.-based auditing firm has cemented their position as a tenacious and aggressive force in the unclaimed property realm, making alliances, enemies and money along the way. Verus, whose name is Latin for true or real, draws both praise and cringes from the various parties with whom they interact. The firm and the services that they provide are hailed by states and reticently acknowledged by some of the biggest insurance carriers in the country and the world. But who is the real and true Verus and what have they done to become so revered, reviled and respected in the world of insurance policies as unclaimed property?
James Hartley Jr., co-founder and CEO of Verus, was an attorney with a practice dealing in commercial, securities and consumer litigation when he was involved in a class action lawsuit against Prudential Financial Inc. in the 1990s. He subsequently realized that during the trend of demutualization over the last two decades, insurers were sending money to states because they could not identify policyholders who were entitled, due to the demutualization, to cash, stock or some combination of the two.
Jeffrey Drubner, co-founder and President of Verus, had been working with Hartley on litigation he was handling. Drubner, a former Special Agent with the Federal Bureau of Investigation, had specialized in international organized crime, money laundering and fraud, and found — using publicly available information — that individuals who owned life insurance, many of whom had been dead for years, were not contacted by the insurers during the demutualization process. Several billion dollars wound up not being paid to the owners of the policies and was escheated to the states.
“That was really the ‘aha moment’ when we put that together and said ‘Hey, these people were lost in the demutualization process, many of them are dead and many of them have life insurance, and since they are lost, their beneficiaries haven’t collected,’ ” said Hartley.
Seeing this as an opportunity, Hartley and Drubner formed Verus in late 2007. These lost policyholders — part owners of the company before the demutualization process — were lost before that process even began. But the methods available at the time to identify the lost policyholders were primitive, to say the very least. Verus needed to find out how big of a market was out there. They built their own system to weigh through the mass of names and numbers. Fancying themselves a technology company because of the unique patented system that they built from scratch, they began to carve out a niche for themselves in the world of unclaimed property.
The DMF and criticisms of Verus
To be certain, not all of what Verus does is that clear-cut and harmonious. Verus has been accused of conducting long-term probes (currently up to four years) on insurers without the insurers being warned. Some maintain that it is an uneven playing ground.
At the same time, insurance carriers have been accused of selectively using the Social Security Death Master File (DMF). The DMF is a file that contains information about individuals with Social Security numbers whose deaths were reported to the Social Security Administration from 1962 to the present. Allegations against insurance companies maintain that they utilize the DMF to stop making annuity payments to deceased annuitants but do not check as often to see when life insurance policies should be paid to deceased beneficiaries.
Verus’s technology includes a computer program that matches insurance company files with the Social Security DMF, among other functionality. One argument against Verus is that they have the resources to conduct these long-term probes against what some industry-watchers maintain are audit-fatigued companies, which results in the companies settling on unfavorable terms.
Mary Jo Hudson, an attorney with Bailey Cavalieri, LLC in Columbus, Ohio, and the former director of the Ohio Department of Insurance, feels that what Verus has done is find a gaping hole in the due process that is unclaimed property. She notes that, “It is very difficult to challenge the actions of these unclaimed property regulators.” Hudson feels that this is unchartered territory to a certain extent. She makes the distinction between unclaimed property audits and other market conduct examinations conducted by the states by saying that most other market conduct examinations happen in “real time,” as opposed to Verus looking into policies that are years old. She feels that not just Verus, but unclaimed property auditors in general, have abused the holes in a law that really does not define a statute of limitations, stating: “They have advanced some wrong legal theories of recovery and they have pressed for settlements through some pretty aggressive audit tactics. What it really amounts to is these unclaimed life benefits are being paid to the states early.”
Hudson says that current state laws allow carriers to wait until limiting age, which is age 100. She feels that carriers have their work cut out to challenge this on a state-to-state basis and she stands by the fact that the DMF in and of itself has never been defined as a regulatory expectation. “It’s really putting a gun to the head of the industry and saying ‘Why aren’t you doing this? Do this now,’ without ever defining this in any policy standard that the insurance departments have put out.”
The National Conference of Insurance Legislators adopted a resolution in November of 2011 supporting a model law dealing with unclaimed property policies, although the original model law was inconsistent with unclaimed property laws and unfair claims practices law. The original law was then amended and unanimously re-adopted in July of 2012. The Unclaimed Life Insurance Benefits Act, as it is called, requires a comparison between in-force life insurance policies and retained asset accounts against the DMF on a semi-annual basis. The act serves as a model law for state legislation. Kentucky was the first state to adopt a law based on the model in April of last year, with Maryland, New York and Alabama following.
Valerie Jundt, Managing Director of Keane Unclaimed Property, and a former state unclaimed property administrator and Executive Director of the National Association of Unclaimed Property Administrators said that the dormancy period for holding the funds before reporting them to the states has been changing over the years, from as high as 20 years now down to five or three years in most states.
One criticism is that the state regulators through Verus are demanding the funds before the dormancy period has fully expired. “Verus has been able to uncover certain circumstances where certain carriers were aware of a person being deceased and made no effort to locate the beneficiary. And that is when they can be compelled to take action,” Jundt said. Use of the DMF to identify deceased insureds allows insurance companies to identify unclaimed policies while avoiding the need to look into every individual policy file to determine whether the insurance company had notice of the death and what steps were taken to attempt to find and pay the beneficiary.
This is where the legality of the current unclaimed property environment can be interpreted as being ambiguous.
“If you are going to create an expectation and a mandate for use of the DMF (in particular, among those carriers that have never used the DMF), is it right and fair to do that retroactively?” Jundt rhetorically asked. But from a public policy perspective, she cautioned that the states may have expectations with regard to insurers that exceed the requirements of the law from a customer service perspective.
Hartley feels that the one criticism that is wholly incorrect is that this is a money grab by the states facilitated by Verus. “That has never been the case,” Hartley said. Life insurance operates under the assumption that an individual is going to one day die and a beneficiary is going to get that money. Verus feels that all they are doing is ensuring that insurance products operate like they are designed to and that they are helping the insurers keep the promises made to their now deceased customers.