California Department of Insurance, along with several other states, announced a settlement with Nationwide companies to pay old unclaimed life insurance benefits to the states and reform its business practices. California estimates it will receive $750,000 from Nationwide. (October 2013: New York Life settles abusive practices with California, see addendum below)
More than once folks have called me trying to find out how they can learn whether a deceased parent had life insurance. Often times they remember their father or mother mentioned a life insurance policy but that was the end of the conversation. Important papers can get lost in the shuffle when a person downsizes from house to apartment and possibly into a skilled nursing facility. With each move there is the potential to lose important documents like a life insurance policy. Usually it is the whole life policy that was paid up years ago and the insured fails to receive yearly notices because of successive moves with no forwarding address.
Life insurance companies are supposed to check the monthly list of deceased person from the Social Security Death Master File or similar database. Unclaimed death benefits are then forwarded to the appropriate state agency if the beneficiary can’t be found. While the life and annuity companies were quick to stop annuity payments when they found a beneficiary had died, they put the death benefits into a bureaucratic bin unless a beneficiary filed a claim. It was this foot dragging on either finding the beneficiaries or forwarding the benefit to the unclaimed property unit of the state that got them in the regulatory bind.
Below is the press release from the California Department of Insurance on the settlement from October 11, 2012.
INSURANCE COMMISSIONER DAVE JONES ANNOUNCES SETTLEMENT
IN DEATH MASTER INVESTIGATION
Nationwide Agrees to Multi-Million Payment and Important Business Reforms
Insurance Commissioner Dave Jones today announced that the California Department of Insurance has negotiated a multi-million dollar settlement with Nationwide Financial Services, Inc., along with the insurance departments of Florida, Illinois, New Hampshire, North Dakota, Pennsylvania and Ohio.
The Nationwide companies, including Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company, who are also named in the settlement, have agreed to business reforms that will ensure that it rapidly pays out life insurance, annuity, and retained asset account benefits. The company will also pay $7.2 million to state insurance departments. California’s share of the settlement has not yet been determined but is expected to be approximately $750,000.
This agreement was developed in tandem with an agreement by California State Controller John Chiang to collect from Nationwide, life insurance, annuity, and retained asset account benefits that have become unclaimed property.
“This settlement is another important step in our effort to reform industry practices regarding the use of the Social Security Death Master File database,” said Commissioner Jones. “As other insurers have done, Nationwide selectively used the Death Master File database to cut off payments to annuity holders, but did not use that database to identify deceased life insurance policyholders and pay their beneficiaries. This settlement ends that practice. I strongly encourage other insurers to come forward and enter similar agreements. Beneficiaries of deceased policyholders should receive their payments immediately.”
The settlement requires Nationwide to run the Social Security Death Master File or similar database monthly to determine whether its life insurance policyholders, annuity owners, and holders of retained asset accounts (accounts holding insurance benefits paid to beneficiaries) have died. If Nationwide learns that a policyholder died, it must conduct a thorough search for beneficiaries, using contact information in its records and online search and locator tools. If Nationwide does not find a beneficiary, it must transfer the benefit to the appropriate state controller as unclaimed property.
Commissioner Jones, in coordination with the other states, achieved similar settlement agreements with Prudential Life Insurance Company and MetLife. In those agreements, the insurers agreed to similar business reforms. Prudential paid $17 million to state insurance departments and MetLife paid $40 million. California’s share of the two settlements was $1.6 million and close to $4 million, respectively.
Today’s settlement becomes effective when 14 additional state insurance departments sign.
October 24, 2013, Press Release
Settlement reached in Death Master case with NY Life
California Department of Insurance leads multi-state investigations into
life insurers’ use of Social Security Administration’s Death Master File
SACRAMENTO, Calif. – Insurance Commissioner Dave Jones announced today that the California Department of Insurance has, with other state insurance regulators, reached a settlement agreement with New York Life Insurance Company over the insurer’s use of the Social Security Administration’s Death Master File database to ensure policyholders and beneficiaries are protected.
New York Life has agreed to a number of business practice reforms, including using the Death Master File database (DMF) to search its records for deceased life insurance policyholders so that its beneficiaries may be paid. In addition, New York Life agreed to pay $15 million to insurance regulators. The principal lead state in this investigation was California, with support from insurance regulators from Florida, Illinois, New Hampshire, North Dakota and Pennsylvania.
“This agreement advances our nationwide effort to reform life insurance industry practices regarding the use of the Death Master database,” said Commissioner Jones.
For many years, life insurers have used the DMF to search for and stop payments to annuity holders, but did not use the database to identify their own deceased life insurance policyholders whose beneficiaries are owed life insurance proceeds. It is estimated that through this practice, insurers avoided paying billions of dollars in life insurance proceeds to beneficiaries and also failed to turn over unclaimed proceeds to state controllers throughout the United States. New York Life has demonstrated that it has been using the DMF symmetrically with quarterly DMF runs since regulators commenced examinations in 2011.
New York Life ranks third in sales of life insurance and annuities with over $21 billion in annual premiums. With the New York Life agreement, life insurers representing over 50 percent of the total national market have conformed or agreed to reform their business practices and use the Death Master to search for deceased policyholders and make benefit payments.
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