Panel Proposes Rules For Unclaimed Insurance Policies
March 5, 2015 by Arthur D. Postal
WASHINGTON – Insurance companies will be allowed to keep funds in unclaimed insurance policies and annuities for three years, under uniform rules being drafted by an advisory group. However, they will be required to use the Social Security Death Master File (DMF) or a similar database.
The uniform rules were adopted by the Committee to Revise the Uniform Unclaimed Property Act of the Uniform Law Commission (ULC) at a meeting in Washington last week.
The recommendations approved are consistent with the National Conference of Insurance Legislators (NCOIL) Model Act adopted last year.
The draft rules will include a dormancy period of three years running from the date of notice of death, unless the insurance company is unable to confirm the death, according to a legal alert issued by the law firm of Sutherland, Asbill & Brennan.
The draft will also include language requiring use of the DMF or similar database, although this could be enacted either as part of the insurance code or as part of unclaimed property laws.
“The ULC has set an ambitious schedule for release of a new Uniform Act by 2016,” the legal alert said. The Drafting Committee intends to read its draft to the full commission at the ULC annual meeting this summer, with a final version scheduled to be submitted for consideration in the summer of 2016.
However, ULC officials made clear that the recommendations, even if adopted by the full committee, do not become law unless adopted by the individual states. And the states can modify the recommendations or ignore them, according to Sutherland lawyers and a ULC spokesman.
The ULC proposal conflicts with the emerging new standard for unclaimed property reporting of life insurance policies. This standard is that the policy is “due and payable” on the death of the insured, according to a new study by Ryan, a global tax firm.
The emerging policy is a change from the “traditional standard,” whereby life insurance policies became due and payable upon death when either the insurance company had knowledge of such death, or the insurance company received a claim furnishing proof of death, the Ryan report said.
The insurance industry, however, is likely to lobby strongly for uniformity in unclaimed property laws. Insurers have paid huge fines to the states because beneficiaries did not file claims on life insurance policies and states wanted to replace revenue lost through the great recession. One study estimates that states currently hold more than $40 billion in unclaimed property. But that sum likely includes funds from bank accounts, life insurance, securities accounts, gift cards and stored value cards.
A number of insurers were forced to give state-designated vendors access to their records. Some insurers were forced to pay for two audits: one conducted by state insurance regulators and the other conducted by state treasurers or unclaimed property agencies.
In its last reported quarter, AIG took a charge of more than $100 million to add reserves related to unreported death claims primarily stemming from old industrial life policies. MetLife has been forced to pay funds to states stemming from unclaimed industrial life policies dating from the 1960s.
And, recent court decisions have held that the states did not have the authority to require insurers to use the DMF or other means to audit their records to ensure claims were paid in cases where the policyowner died but the proceeds were not claimed.
Now, smaller insurance companies with far fewer resources are voicing concerns about the cost and legality of the state initiatives.
