Florida's insurance regulator is looking into whether insurers' alleged failure to deliver deceased clients' death benefits promptly may have had an impact on the companies' financial statements and reserves.
“These are questions that have come up over the course of the investigations,” said Kevin McCarty, Florida's insurance commissioner and chairman of the National Association of Insurance Commissioners' task force on life and annuity claim settlement practices.
“So far, the focus has been on the investigations on the claims practices, but when we take a larger look at this, the pivotal question is, ‘How do you start accounting for these policies and are they still reserved?'” Mr. McCarty asked. “If they have in their files that the person is dead, do they then release the reserve, and how is that ultimately reflected in the financial statement?” he asked.
“Commissioners will be curious as to what has been reported in the past,” Mr. McCarty added.
Life insurers' claim settlements practices have been in the spotlight after a three-year investigation helmed by audit firm Verus Financial LLC on the behalf of 35 states led last month to a $20 million settlement between California and John Hancock Life Insurance Co.
The investigation, which examined the practices of 21 insurers, attempted to determine whether the companies were complying with state unclaimed property laws when distributing death benefits. Those laws require businesses to submit lost or abandoned accounts to states after three years — and in some cases, five — of inactivity.
California controller John Chiang also has pointed out that the investigation showed that insurers did not routinely cross-check the owners of the dormant accounts with government databases listing the names of the dead.
Mr. Chiang and California insurance regulator Dave Jones will hold a hearing May 23 to look into Metropolitan Life Insurance Co.'s practices and has subpoenaed the insurer to have representatives appear that day. Meanwhile, Florida has subpoenaed Nationwide Life Insurance Co. and
MetLife and Connecticut's insurance department recently announced it has started an inquiry into the payments practices and the steps insurers took to find beneficiaries.
Though the 35-state investigation is looking into whether the insurers had rightfully turned the money in dormant accounts over to the states, the NAIC task force and other insurance regulators are more interested in the due diligence insurers perform when investigating and delivering claims.
“[Escheating to the state] is a sub-issue of the larger issue of claims-handling practices and whether or not there's a pervasive problem with firms that use a
Social Security death master list to terminate annuity payments but don't use it to initiate an investigation into life policy holders,” Mr. McCarty said.
“I think intuitively and to the average reader, they'd say, ‘If you're going to cut off my annuity, then you ought to investigate my death claim,'” he added.
“We're not aware of any analysis on this issue,” said Whit Cornman, a spokesman for the American Council of Life Insurers. “We think that further examination of insurance company unclaimed property practices will reconfirm life insurers' commitment to policyholders and beneficiaries.”
