Both state insurance regulators and corporate treasurers “are moving away” from enforcement actions against insurers, i.e., imposing huge fines and dictates on use of the Social Security Death Master File (DMF), on unclaimed property issues, a lawyer and former insurance commissioner says.
Instead, “most of the focus is on legislation at this time,” said Mary Jo Hudson, a former Ohio insurance director and a partner at Bailey Cavalieri LLC, in Columbus. Hudson made her comments at a panel discussion Sunday on unclaimed property that was part of the annual conference of the American Council of Life Insurers. It is being held at the JW Marriott Hotel in downtown Washington, D.C.
Hudson said that there “are a couple of cases going on and the active cases involve larger companies,” but, in general, “most of the insurance departments have pulled back from enforcement.”
“Likewise, the unclaimed property regulators, the treasurers, have pulled back as well,” she said. But, Hudson said, that pullback does not disguise the fact that the wholesale enforcement actions constitute “a dark period for insurance regulation, a very, very rough time.”
That period, dating from 2009, saw enforcement actions by state insurance regulators based on allegations that use of the DMF “asymmetrically,” that is, its use by insurers only to determine if someone has died in order to end payments under guaranty riders in variable annuity contracts constitutes a deceptive practices and mandates that insurers use the DMF frequently to determine whether a policyholder has died.
At no time, said Hudson directly and in a paper she co-authored from the American Council of Life Insurers has “the insured’s date of death been used or even considered as an alternative dormancy trigger,” that is, a mandate for the insurer to turn over the proceeds to a state under unclaimed property laws.
Likewise, she said, “no insurance code provision has required life insurers to affirmatively seek to determine whether or not their insureds were deceased for unclaimed property due diligence or reporting purposes.”
“The background,” explained George Keiser, a Republican state legislator from North Dakota and another panelist, is that in 2008 and 2009, “most states were in financial difficulty, there were proprietary programs and all, and the companies that developers those programs went to the state treasurers and said, ‘we can generate a lot of money for your state’,” Keiser said.
He added that, “And those state treasurers ran to the governors, and the governors said, ‘my goodness, there is a gold mine out there you need to mine it; go after it’. That is what really started the process.”
As a key player in the National Conference of Insurance Legislators (NCOIL), Keiser is playing a role in the current NCOIL effort to revise the Unclaimed Property Benefits Act model law NCOIL developed several years and which has been acted fully or in revised form in 16 states.