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April 28, 2014 at 08:00 PM
Back in the days of captive insurance agents, when the agent was personally acquainted with his customers, it was fairly simple to be sure beneficiaries received death benefits and annuities stopped on the death of the annuitant, according to Todd Eyler, research director for Aite Group’s insurance practice. In fact, sometimes beneficiaries weren’t even aware that they were due a benefit until the agent made sure it was paid.
“The captive agent from Prudential or New York Life or MetLife knew your kids, your family. [The agents] would contact the company [for you] and everything was taken care of,” said Eyler. “But the trend is away from captive relationships to direct sales. Changing names, divorces, people changing addresses every seven years [makes that much more difficult.]”
Not that it was the insurance company’s job to find beneficiaries. According to the Aite Group’s recent report “Unclaimed Death Benefits: Technology Aspirin for a Big Headache,” which Eyler authored, “state insurance laws do not require life insurers to determine when a policyholder has died, locate beneficiaries and instruct them to file a claim, or pay a claim in the absence of a valid death certificate.” That meant unclaimed death benefits sat on a company’s books and in its investment accounts, saving it money and perhaps even earning some.
States got involved in whether, when and how insurers tracked down beneficiaries in the wake of the financial crisis. Since 2011, according to Aite’s report, states “have focused on unclaimed property in general and unclaimed life insurance death benefits in particular as a way to help generate additional revenue.” They ran into a little problem with that, however.
Insurance companies were using the Social Security Death Master File—the database used to “deny Social Security benefits to the deceased”—to determine when annuitants had died so that benefits could be stopped. But insurers were not engaged in the same level of due diligence to find beneficiaries of life insurance policies. Instead, Aite’s report said, “state investigations found that many life insurers had used this database to confirm that annuity contract holders had died, allowing the insurer to stop payments, but had not used the same data to pay out death benefits due to rightful life insurance beneficiaries.”
What followed, according to Aite, were “[u]nclaimed property audits, multistate regulatory settlements and class-action lawsuits surrounding unclaimed life insurance benefits.”
