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Push to identify deceased policyholders costs US life insurers $10B

Life insurers across the U.S. have paid out almost $10 billion in death benefits that they would have kept had regulators not intervened, California's outgoing insurance commissioner said as he wrapped up his eight years in office.

Dave Jones spearheaded an effort by regulators in six states to make life insurers regularly consult the Social Security Administration's Death Master File, or DMF, to find deceased policyholders who had not been identified to the carriers by beneficiaries making claims.

SNL Image

Dave Jones, former California insurance commissioner
Source: California Department
of Insurance

"There's no question that the nearly $10 billion that was paid would not have been paid" if he and other regulators had not acted, Jones said in an interview just before he left office in early January.

Audit spurred review

Spurred into action by an audit of unclaimed property run by the state controller in 2011, the newly elected Jones, a Democrat, launched a review of how MetLife Inc., one of the largest life insurers in the U.S., made use of the federal death list. He determined that the carrier routinely consulted the file to identify recently deceased annuity recipients so it could cancel their benefits, but it did not check the list for life insurance policyholders who had died and then reach out to their beneficiaries.

"Even worse, following the deaths of life insurance policyholders, MetLife continued withdrawing premium payments from the life insurance policyholder's account until the cash reserves were used up and then canceled the policy," the state department of insurance said in a recent report summing up the effort.

The findings led Jones and insurance regulators from Florida, Illinois, Pennsylvania, New Hampshire and North Dakota to review how the top 40 U.S. life carriers use the death file. Nine of those companies — including Allstate Corp. and Northwestern Mutual — remain under review over the issue, while 27 have entered into settlements, according to the report.

Only four of the top 40 — MassMutual, USAA, American Equity and Citigroup — were found to be making appropriate use of the DMF.

"Allstate reviews the Social Security Administration's Death Master File and other sources in order to locate possible beneficiaries for life insurance and annuity policies" on a regular basis, spokesman Ben Corey said. He did not comment on why the review continues or when it is expected to conclude.

A Northwestern Mutual spokeswoman did not provide a comment before publication.

Most of those that settled did so quickly, and those that still have not resolved issues raised by regulators since the start of the probe "run a real reputational risk" by not reaching settlements, Jones said. Led by Prudential Financial Inc. in February 2012 and followed by MetLife in April 2012, those that settled have paid participating states $180 million, including $40 million from MetLife and $17 million from Prudential.

A further $30 million has been paid into state unclaimed benefits funds, where the money is held temporarily for beneficiaries who could not be found by insurers after a certain period of time. Generally after a transition period, the money defaults to the state.

MetLife and Prudential both denied any wrongdoing in agreeing their settlements, and said they had acted in good faith.

Some reviews continue

As the reviews progressed, more state regulators began similar efforts with smaller insurers under their jurisdiction, Jones said. The department's report said Chicago-based Kemper Corp. and Thrivent Financial for Lutherans, a not-for-profit insurer in Minneapolis, "have aggressively fought and continue to fight with insurance regulators and unclaimed property officials over their obligations to find and pay beneficiaries of their deceased insureds."

But representatives of both companies said that characterization was inaccurate and misleading.

"The courts have agreed with Thrivent and concluded that the state officials have been wrong about what their laws actually require life insurers to do," the carrier said in a statement. "In fact, several courts around the country have clearly recognized that insurance regulators and unclaimed property officials have misconstrued their own laws regarding life insurers' obligations.

"In July of 2018, Thrivent was successful in securing a court order that permanently enjoins the state of California controller's office from enforcing 'underground' regulations that improperly accelerate the timetable for demanding unclaimed life insurance proceeds before there is a full opportunity to identify and locate beneficiaries of these life insurance policies," the insurer said. "Thrivent felt strongly that its members should be provided the period specified under California law for beneficiaries to be located so they can receive the life insurance proceeds they are entitled to."

In the interview, Jones said that despite the mention of Thrivent in the state report, he was not personally familiar with where things stood with that carrier.

Kemper, Jones said, maintains that it is in compliance with the rules.

"What Kemper is still fighting is the obligation to go back in time and search for policyholders and beneficiaries," Jones said. In the state reviews, insurers were asked to look back through the DMF to 1992 to identify any unlocated deceased policyholders.

"We've always been in compliance with state unclaimed property laws, and strongly support the use of the DMF and similar tools," spokeswoman Barbara Ciesemier said. In 2016 Kemper began a new effort to use the DMF to "to proactively identify deceased policyholders," she added.

"In January 2017, we reached an agreement with the California State Controller's Office related to the scope of the Controller's audit regarding unclaimed life insurance benefits, and the [state department of insurance] is quite aware of that agreement, of which implementation is ongoing and proceeding as expected," she said.

Looking back over his eight years overseeing the largest state insurance market in the U.S., Jones called the DMF review campaign "one of the most important pieces of work" he had undertaken.

State Senator Ricardo Lara, a Democrat, takes over the Golden State's insurance department with effect from Jan. 7. Jones said he had not yet decided on his next career move.