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Unclaimed Opportunity To Serve Past Clients

Recent events have caused the life insurance industry to come under the scrutiny of state regulatory agencies. At issue is the lack of compliance with state unclaimed property laws on the part of the life insurance companies, and failed searches for beneficiaries entitled to proceeds from life policies.

As a result, unclaimed property audits and market conduct exams have accelerated, making it a challenging time for life insurance companies and their agents. State regulatory agencies are criticizing life insurance companies for failing to regularly monitor the Social Security Death Master File (DMF), proactively notify beneficiaries of policies and appropriately report policies as unclaimed property should a beneficiary fail to be located. On the other hand, life insurance companies say that fraudulent claims are on the rise and, as a result, they are relying solely on the relatives and beneficiaries of the policyholders to provide notification and proper documentation to make a claim for the policy.

The problem is that 60 percent of the estimated 2.5 million people who die each year fail to execute a last will and testament, leaving their estates and beneficiaries with no knowledge of their life insurance and investments. As a result, many beneficiaries aren't aware that the policies exist and fail to come forward to make a claim.

How does this affect life insurance agents? Should your company be faced with an audit, not only would it be at risk of harsh penalties for non-compliance and negative publicity, but your relationship and reputation with your clients could be tarnished as well.

Navigating the Issues

To conduct unclaimed-property audits and market-conduct exams, states are contracting with third party auditors. Paid on a contingency basis, these auditors are basically incentivized to conduct highly aggressive and timeintensive audits of life insurance companies. Consequently, companies like John Hancock Life Insurance Company have found themselves facing numerous, time-sensitive demands to respond to inquiries, prepare and produce volumes of records, identify current and past business practices as well as document policies and procedures. All of these demands ultimately created a liability where they agreed to pay millions of dollars to various state regulatory agencies.

In May, John Hancock entered into a settlement agreement with Florida under which it agreed to pay $2.4 million in investigative costs and fees and refine its business practices, including regularly monitoring the DMF to help it maintain good policyholder data. The Verus audits took measures one step further in June when John Hancock signed a Global Resolution Agreement with the auditor that mirrors the Florida settlement. To date, approximately 29 states have signed the agreement. The John Hancock settlement is paving the way for changes to come in the industry overall. In fact, the New York attorney general office recently announced it was subpoenaing 30 life insurance companies to investigate their use of the DMF and their compliance with New York unclaimedproperty laws. In addition, MetLife and Nationwide have announced they are under audit demonstrating-that there are more audits under way and the industry will soon be expected to embrace new rules.

Influence on Insurance Agents

The current audit landscape will not only cost insurance companies millions in fines and penalties for non-compliance, but will also affect how life insurance agents capture information when they sell their policies. However, compliance issues can be avoided, by taking these six steps:

1. Start with the John Hancock Settlement Agreement & Task Force Summary

Review the John Hancock settlement agreement first; it will provide a solid understanding of the scope and nature of the anticipated changes on the horizon. The information gathered during the State Insurance Commissioners Task Force Hearing also provides a good foundation for expectations and regulations to come.

2. Check In with Policyholders

Communicate with policyholders annually to ensure that you have the correct information on file. Policyholders may move, get married and change their names. Annual check-ins will give you a better handle on policyholder and beneficiary information, potentially leading to a discussion about other relevant products and services your company may offer-just don't forget to document these communications and any changes to confirm that it is an "active account."

3. Search the DMF

Explore the DMF, if contacting a policyholder is unsuccessful, to see if the person is deceased. If the policyholder is deceased, it's important to contact the listed beneficiary so that the policy can be settled. If the policyholder is deceased and you are unable to locate a beneficiary, you will need to follow your company's due diligence and escheatment processes and procedures.

4. Know Your Company's Unclaimed- Property Procedures

Inquire about your company's policies and procedures so you know what steps are required of you if you're unable to locate a beneficiary.

5. Conduct Internal and Periodic Reviews

Review records and processes built into your system regularly to ensure that all relevant owner data and dates are captured and have been updated.

6. Consider Outsourcing

Hire an independent specialist to further confirm and provide suggested feedback for recommendations and updates. These reviews can also be shared with state examiners to further confirm your commitment and investment to ensuring compliant internal controls and protection from fraud.

Taking a Comprehensive Approach to Compliance

With the life insurance industry under the compliance microscope, it is vital to be active in becoming, and remaining, compliant with state unclaimed-property laws. Navigating these various laws can be a complex undertaking, requiring companies and agents to work together to ensure a comprehensive approach to compliance. Both the life insurance company and their agents should have a clear idea of their company's policies and procedures, the department responsible and how to contact the proper internal and external resources if necessary. These collective efforts can help decrease the risk of audit, reinvigorate the public trust and reinforce the overall commitment of the insurance industry.

Valerie Jundt is managing director of Keane Consulting & Advisory Services. Contact her at [email protected] [email protected].

Dan Beatrice, ACS, AIAA, is a an analyst for LIMRA’s Retirement Research Center. [email protected].

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