A rift has developed between state regulators over whether to continue to pursue enforcement actions against insurers for noncompliance with unclaimed property laws, or whether to shift gears and provide guidance aimed at ensuring what the industry calls “fair and uniform” settlement practices.
The issue is of critical importance to life insurance companies. For example, New York Life agreed to pay $15 million last week to state regulators to settle all unclaimed property enforcement actions with the understanding that such a settlement would pave the way for state regulators to move toward crafting a model law or some other form setting out policy that insurers could use to deal with the issue going forward.
However, their hopes were dashed late Friday when the National Association of Insurance Commissioners’ (NAIC) Executive Committee failed to adopt a “charge” for the (A) committee in 2014 to consider whether to provide guidance on the uniform use of the Death Master File (DMF) for life insurers.
After an extensive discussion, which the public could not hear, the Executive Committee decided to take no action and did not approve the (A) committee 2014 charge regarding unclaimed property.
“That meant that the status quo — where the lead states continue to pursue regulatory settlements with individual companies — prevailed,” one of the 177 interested parties on the call said.
According to several regulators who spoke to National Underwriter, supporters of a new, less confrontational approach are led by Thomas Donelon, Louisiana commissioner and current NAIC president. Those seeking to retain the confrontational approach are led by Adam Hamm, North Dakota commissioner and incoming NAIC president.
An NAIC spokesman said Hamm won’t be available to speak to reporters until the NAIC’s winter meeting in Washington in mid-December. North Dakota is among the five lead states where state insurance regulators are pursuing enforcement actions against insurers. Other states include California, Florida, Illinois, Pennsylvania and New Hampshire. And, California’s comptroller, John Chiang, is also being aggressive in pursuing parallel enforcement actions against insurers. A third front is West Virginia. Oral arguments were heard in early September on litigation dealing with the issue against 68 insurers admitted to sell life insurance in the state. It is unclear when the court will rule.
This status quo is unacceptable to both the industry and a considerable number of state regulators. According to several of them, there is a deepening concern that the state regulators and treasurers should quit while they are ahead.
That is, after hitting up most of the deep-pocket, big insurers for multi-million dollar settlements, they should establish model laws, regulations or guidelines dealing with the issue, and not seek large settlements from medium and smaller insurers where too large a hit could lead to insolvency, this group of state regulators contend. These smaller insurers, some of the regulators say, are already paying high legal fees to defend themselves, and that should be enough. Pursuing these cases against smaller insurers “is the wrong thing to do,” one said. “This should end.”
In a recent letter to the NAIC, ACLI president and CEO Dirk Kempthorne described a “no man’s land” for insurers seeking to put the unclaimed property issue behind them.
Kempthorne cited the absence of specific and harmonized standards enshrined in the insurance and unclaimed property codes, He said they have to meet the competing expectations of state insurance regulators (claims settlement) and state treasurers (unclaimed property administration).
“Contingency fee auditors working on behalf of the states are fashioning new requirements where the law is unclear, forcing changes in contract terms that had been previously approved by regulators and in place for decades,” Kempthorne said.