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Lincoln Nat'l settles multistate action for $12.6M

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Lincoln Financial Group companies are the latest insurer to come under the widening umbrella of the Social Security Administration’s Death Master File (DMF) settlements with state insurance departments, this time with a $12.6 million claim agreement with Lincoln National Life Insurance Co. and various life and annuity affiliates.

The latest agreement was the result of a coordinated multi-state examination among state insurance departments in North Dakota, California, Florida, Illinois, Indiana, New Hampshire and Pennsylvania, with Pennsylvania, home of Lincoln, the lead state in this examination.

Established in 2011, the multi-state examination process of the top 40 life and annuity insurers in the United States is coordinated by the National Association of Insurance Commissioners (NAIC) Life/Annuities Claim Settlement Practices Task Force, chaired by Florida Insurance Commissioner Kevin McCarty. The Lincoln National examination began in August 2011, with an audit beginning a month later relating to the unclaimed property laws of Florida and other states. 

With the signing of this latest agreement with Lincoln and the state insurance departments, more than 55 percent of the life and annuity insurance market covered in at least a dozen multi-state sanctions have settled claims practices upon the death of policyholders. 

Many of these state actions have previously mushroomed into private action lawsuits filed in Illinois, Ohio and New York against top insurers Prudential and MetLife.

The settlement agreement with Lincoln and other similar insurers focuses primarily on the asymmetrical use of the Social Security Administration’s Death Master File (DMF) solely to cease making annuity payments, not to search for beneficiaries of a life insurance policy who may be due benefits. 

For its part, Lincoln has agreed to implement business reforms correcting this practice and to make a multi-million dollar payment, which will be disbursed among the participating states. Florida’s allocation of the $12.6 million payment is expected to be more than $1 million. 

“Lincoln has settled the industrywide, multi-state Insurance Department examination of potential unclaimed life insurance proceeds. Paying our policyholders’ life insurance claims is of the utmost importance to us. We believe that the practice of checking the Social Security Administration’s Death Master File as part of our efforts to identify potential life insurance claims – while not required previously by law in most states and not standard practice within the industry – is an improvement in our business practices, and one that we already started phasing in earlier this year,” stated Michael Arcaro, a Lincoln National spokesman.
“While we disagreed with the departments’ assertions about what was required by law, we thought that certainty was important and warranted settlement. We are pleased to put this matter behind us and, most importantly, to be taking steps to better serve our customers,”  Arcaro stated.
How often should insurers be checking the DMF? Some states like Kentucky and Tennessee and Maryland have gone ahead with the National Conference of Insurance Legislators’ (NCOIL) model legislation for periodic checks every few months. Some states are twice per year. But, for the companies that have settled, like Aegon, the DMF search requirement is usually use of the full DMF at least once per year, and then the DMF monthly-update file at least 3 times per year, noted one person familiar with the states’ laws.

Other life and annuity insurance companies are likely still under examination if they haven’t settled yet, with most of the large-sized life insurers having put this behind them now. 

Use of the DMF is a key component of an aggressive move by states to determine whether insurers are doing enough to find beneficiaries, or, in the alternative, turn the money over to the states.

In fact, 45 states have retained Verus to verify compliance. Verus uses the DMF in the software it uses to verify that insurance companies are complying with unclaimed property statutes and are aggressively seeking to find the proper owners of life insurance policies.

John Hancock, MetLife, Prudential, AIG and Nationwide have settled with groups of states who have alleged noncompliance with unclaimed property laws.

The states are now turning their attention to smaller insurers, according to industry lawyers.

“The DMF is an extremely accurate and valuable tool that may be utilized by insurance companies and financial institutions to identify deceased individuals, and the GAO’s testimony is simply part of ongoing efforts by the government to make the DMF even more reliable,” said Jeffrey Drubner, president of Verus Financial, a Waterbury, Conn., auditing firm.

See also: The Verus Financial Story

Arthur D. Postal contributed to this report


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