Regulation and Compliance > State Regulation

Unclaimed property: Status quo prevails

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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.

Donelon sidestepped whether he was stymied by other regulators last Friday in moving the ball forward immediately on a model law, regulation or guideline dealing with use of the DMF. He would only say that, work “should start sooner rather than later.”
But, he acknowledged that the time has come to give industry some clarity as to what is expected from them as regards the use of the DMF “on an expedited basis.” He also said a vibrant discussion is required between industry and regulators on the use of the DMF going forward, whether it be “symmetrical, bilateral, or not at all.” The “symmetric” use of the DMF, that is, only in cases where insurers use the DMF to determine whether the beneficiary of an annuity with guaranteed benefits is alive, was how the current probe got started.  

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.

“These arbitrary requirements also create uncertainty in the compliance processes and systems that support claims handling and unclaimed property reporting,” Kempthorne said, adding “legal actions brought against companies by third parties who might not have policyholders’ best interests as their primary goal have served to exacerbate the issue and cause unnecessary expense.”

Put another way, Mary Jane Wilson-Bilick, one of MetLife’s lawyers who has become an expert on the issue, said the problem is that insurers are dealing with two sets of regulators, unclaimed property administrators or treasures vs. state insurance commissioners, two sets of agreements per company, a Global Resolution agreements with administrators/state treasurers, and a Resolution Settlement Agreement with insurance commissioners.

“Moreover, GRAs look backwards; RSAs look forward,” Wilson-Bilick said, noting that there are two sets of independent auditors, Verus of Waterbury, Conn., and the Unclaimed Property Clearinghouse, a Xerox unit.

“The outside auditors make more money, 10 percent to 13 percent on the GRAs, so they are more willing to work with state administrators/treasurers,” she said.

“State insurance commissioners are more difficult to please and have rejected a group settlement. Some commissioners are unwilling to listen to real issues, this is a difficult, complex situation,” she said.

State comptrollers and insurance regulators have already agreed to huge monetary settlements and agreements with large insurers to use the Social Security DMF regularly to ensure that death claims are paid or the money is turned over to the states through escheat laws. Large insurers that have resolved these cases include MetLife, Prudential, American International Group, John Hancock, TIAA-Cref and Nationwide, as well as New York Life.

And, industry lawyers and the American Council of Life Insurers have established setting forth a uniform policy nationwide as a priority.

“We think a dialogue with the NAIC — as our industry’s standard-setting organization — on the challenges life insurers face in complying with the growing inconsistency and complexity of the regulatory framework for unclaimed benefit administration is long overdue,” said Whit Cornman, a spokesman for the ACLI

He acknowledged that “some commissioners apparently were concerned that consideration of the topic should wait until the NAIC’s 2014 charges are proposed and considered.

“We understand and respect the NAIC’s decision and will participate in a dialogue with the NAIC if and when it decides to pursue a charge,” Cornman said.

Negotiations with the NAIC are being led by Bruce Ferguson, top state lobbyist for the ACLI.

The ACLI, on behalf of industry, is asking that the NAIC draft a model law, regulation or guideline to ensure fair and uniform claims settlement practices involving unclaimed life insurance benefits, Kempthorne said in his letter.