Never before has there been such drastic change in the life insurance industry in regard to unclaimed property. Traditionally, life insurance policies for which there have been no death claims, but whose owners are deceased, have not been considered “unclaimed,” but that is changing — fast — and it impacts the way that insurers and independent agents manage policies that are eligible for death benefits.
This shift is borne of the intense scrutiny of industry practices by state regulators. Specifically, insurers are under fire for not proactively determining if policyholders are deceased and notifying beneficiaries that they are entitled to proceeds from the life policies. As a result, pressure is mounting for insurance companies to regularly monitor the Social Security Administration’s Death Master File (DMF), proactively notify beneficiaries of their rights, and appropriately report assets as unclaimed property if beneficiaries cannot be located.
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AUTHOR: Valerie Jundt
The result is a “new normal” unclaimed property landscape. This environment is rife with legislative changes that will ultimately require insurers to escheat — in other words, turn over to the states — millions of dollars in proceeds related to unresolved accounts.
These changes present all-new operational challenges for compliance professionals as they navigate a new set of escheatment processes. They also create hurdles for insurers as they attempt to retain policyholder accounts, and add further complexity to the intensive audit and market conduct survey examinations experienced by the top 40 insurers in the country, which represent just over 92 percent of the market for life and annuity policies.
To effectively abide by the new regulations and protect customer accounts, it is crucial that insurers and agents have a clear understanding of the rules. In addition, it is important to embrace the fact that compliance with these rules can positively contribute to the corporate mission of protecting the organization and policyholder accounts.
New Legislation & The Unclaimed Life Insurance Benefits Act
The recent wave of unclaimed property audits — which has resulted in multi-million dollar settlements by some of the nation’s largest insurance carriers — has prompted many changes across the industry. Among them is the creation of the Unclaimed Life Insurance Benefits Act by the National Conference of Insurance Legislators (NCOIL). Initially adopted in November 2011, and more recently amended and unanimously re-adopted in July 2012, the act serves as a model law for individual state legislation. It requires a comparison between in-force life insurance policies and retained asset accounts against the DMF or a similar service on at least a semi-annual basis to identify decedents, and that insurers complete a good faith, documented effort to confirm the death of the insured and determine whether benefits are due within 90 days. If benefits are due, the insurer must use good faith efforts to locate the beneficiaries and provide appropriate claim forms or instructions to each beneficiary to make a claim, including the need to provide an official death certificate if applicable under the policy. The act also prohibits insurers and insurance service providers from charging policyholders service fees for costs associated with DMF searches.
Beginning in April 2012, states began passing legislation with similar beneficiary location provisions. Kentucky was the first state to enact such a law with the passage of HB 135 on April 11, 2012. Shortly thereafter in May 2012, Maryland, New York and Alabama each followed suit by passing similar laws that will hold life insurers to these more stringent standards for verifying decedents and locating beneficiaries. This regulation affects all insurers who do business in these states, not only those that are geographically based there, and enforces the commonly held notion that this is just the beginning of state- and industry-wide adoption in the near future.
Best Practices
This new legislation affects insurers and agents alike. At a corporate level, insurers will likely need to undergo an operational overhaul to comply with new requirements and minimize the impact on policyholder assets. Meanwhile, agents should adjust some of their day-to-day practices to ensure all client information is up-to-date. By following the suggestions below, insurers and agents can navigate the new requirements and work in tandem to maintain compliance and safeguard policyholder assets.
Review and Update Policy and Beneficiary Information
Conduct a thorough review of all current policy records to make sure the information on file is accurate and complete. Be sure to include both policyholder and beneficiary information, as many states require that beneficiary information be included on their unclaimed property reports.
Schedule Annual “Check-Ins” with Policyholders
To proactively update your records, make it a habit of checking in with policyholders at least once a year to see what may have changed in their lives. Policyholders may move, get married, change their names, have children or otherwise need to change their personal or beneficiary information. However, updating that data is not necessarily at the top of their “to-do” list. By reaching out and keeping records up-to-date, you will be well prepared in the event that you need to quickly communicate with clients whose assets are at risk of escheating.
Maintain Regular Contact with Clients
Don’t be a stranger to your clients outside of annual check-ins. Keeping in contact on a regular basis enables you to stay abreast of your clients’ lifestyle changes and opens the door for discussions about other products and services you offer that may meet their needs. It is a perfect opportunity to upsell, cross-sell, and increase client service.
Analyze Results from DMF Searches
Long recognized as a best practice, searching the DMF on at least a semi-annual basis is now a requirement of some new laws, as noted earlier. If you are unable to connect with a policyholder, reviewing the results from DMF searches will help determine if they are deceased, in which case you should contact the beneficiary to settle the policy. It is in your best interest to locate beneficiaries as soon as possible after the policy owner’s death to allow time to conduct comprehensive searches and communicate with the individual if beneficiary information is incomplete or out of date. As time passes, it becomes more difficult to locate the rightful beneficiaries or heirs, adding unnecessary pressure to what can be an already arduous task. If you cannot locate the beneficiary, the policy proceeds will need to be escheated to the state within three to five years, depending on state laws.
Review Your Unclaimed Property Compliance Protocol
With the anticipated new laws and regulations discussed above, insurers should review their corporate unclaimed property policies and procedures, and update them as necessary. This includes:
- Verifying that an appropriate, comprehensive unclaimed property compliance process is in place;
- Ensuring that internal processes and systems properly capture and address all state requirements; and
- Considering an independent, enterprise-wide review of unclaimed property protocol to make sure people, systems, and procedures are “audit ready.”
These processes and procedures should be clearly communicated to all employees, and agents should ensure they fully understand the steps they are expected to follow if they are unable to identify a deceased policyholder or a beneficiary.
Conclusion
From compliance responsibilities, to business operations and client relations, new unclaimed property requirements are drastically changing the management of life insurance policies that are eligible for death benefits. But, by clearly understanding the implications of the legislation, proactively addressing mandates, and embracing accountability for responsibilities that are within their purview, insurers and agents can successfully work toward maintaining compliance and retaining policyholder assets.
Valerie M. Jundt is managing director of Keane Unclaimed Property Consulting & Advisory Services. She can be reached at info[at]keaneup[dot]com or 800-848-8896.
Agents must adapt to life insurers’ new unclaimed property mandates via IFAwebnews.com .
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