Earlier this year many state regulators began insisting that insurers proactively identify beneficiaries of life insurance policies by running the Social Security Death Master File against their policy records. No new regulations have been written yet, but insurers are coming to terms with a new mandate to examine policy data.
Traditionally, insurers have paid life insurance policy death benefits when beneficiaries present claims. However, states have argued that since insurers regularly review the Social Security Death Master File (DMF) to screen for annuitants who have died and thus are no longer due disbursements, they should also use the DMF to proactively identify life insurance policy beneficiaries. Funds that don’t find a beneficiary revert to the state.
Since April 2011, state regulators have formed a task force on unclaimed death benefits, and in states including Florida and California, regulators called hearings and audited major life insurance companies, including MetLife (New York) and Nationwide Financial. In May, the California Department of Insurance announced market conduct examinations of the top 10 life insurers for what a Department statement called “potentially unfair practices in handling of dormant policies.” And the same month, John Hancock negotiated a settlement with 29 states, agreeing to pay $2.4 million to cover the costs of investigating the insurer’s claims process and to establish a $10 million fund.
Following the scrutiny, John Hancock has agreed to take more proactive measures to identify beneficiaries, and other companies have followed its example. But even as insurers express their willingness to cooperate with regulators, they insist that they have done nothing wrong, according to M.J. Wilson-Bilik, a Washington, D.C.-based attorney with law firm Sutherland Asbill Brennan.
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“Most companies feel that they have been in complete compliance with the law the whole time,” comments Wilson-Bilik. “There is nothing in state insurance law requiring that a company undertake a match or run their business against the DMF, and if they do, there are lots of questions about what constitutes a match.”
Along with MetLife, Nationwide Financial was subpoenaed to appear before the Florida Office of Insurance Regulation in May. Both companies have claimed that they began to screen their policies against the DMF prior to this year.
“We started proactively comparing our in-force policies to the DMF in 2010,” Jeff Stein VP, underwriting and operations for individual protection, Nationwide Financial (a division of Columbus, Ohio-based Nationwide; $20.8 billion in annual revenue), tells IT. “We take our policy data from our IT partners and interface with a solution provider to take our info and compare not only to DMF but to a variety of other databases to notify us of a possible death.”
Felix Fedorowicz, president of Nationwide’s solution partner, The Berwyn Group (Beachwood, Ohio), says that for every 1 million policy records screened against the DMF, between 30,000 to 50,000 are identified as having potentially deceased policyholders. “The insurers then have to research those files and between 80 and 90 percent may not be their policyholders, but they have to make a good-faith effort to find out,” he says.
“There’s a significant amount of work once we get a possible match,” acknowledges Nationwide’s Stein. “Even if there is a match, it doesn’t necessarily mean a benefit is due. … It’s a very manually intensive process.”