Thursday, May 5, 2016

No. 160: Unclaimed and Unpaid Death Benefits—More on the "60 Minutes" Criticism of Life Insurance Companies

In No. 159 (posted April 27), I discussed the criticism leveled at life insurance companies in the lead segment ("the segment") of CBS's "60 Minutes" on April 17. The segment was directed at unclaimed and unpaid death benefits, and also accused companies of systematically destroying the equity that many policyholders had built up in their policies. The post generated considerable interest, and this follow-up is warranted.

The Varying Responses
No one expressed objections to my description of the historical background of unclaimed and unpaid death benefits, lost policies, and lost policyholders. There were no comments on the first opinion I expressed, but numerous objections to the second. Here are the two opinions:
On the positive side, the segment provided a public service by calling attention to the problems of lost policies and unclaimed and unpaid death benefits. On the negative side, the segment was slanted to shine an undeservedly harsh light on life insurance companies.
I consider the segment slanted in at least four ways. First, it did not mention the insuring agreement invariably found in life insurance policies. Second, it did not mention the automatic premium loan clause. Third, it did not provide air time for the spokeswoman designated to represent the American Council of Life Insurers (ACLI), a life insurance company trade association, while stating on air that no life insurance company had made a spokesperson available. Fourth, it provided only a few seconds of air time for a spokesman of the Insurance Information Institute, an insurance company trade association oriented more toward property-liability insurance than life insurance. (In No. 159, I said the ACLI spokeswoman, Mary Jo Hudson, was interviewed on the telephone by Lesley Stahl, the on-air commentator. A knowledgeable reader informed me the comment was incorrect because Hudson was interviewed on the telephone by Rich Bonin, the producer of the segment.)

In response to my comment that the segment shined an undeservedly harsh light on the companies, some readers said what the companies had done was so outrageous that people should be in jail. My comment grew out of my concern about the nature of the evidence presented in the segment. I think the documents mentioned probably were not seen by senior officials or mid-level personnel who would have understood the implications of the documents. Also, until I see evidence to the contrary, I cannot believe that knowledgeable company personnel would rub their hands with glee over cheating beneficiaries out of death benefits.

"Asymmetric" and "Symmetric" Use of the DMF
As mentioned in No. 159, the U.S. Social Security Administration maintains a Death Master File (DMF) that supposedly lists all deceased persons in the U.S. As I explained, several years ago there was widespread and embarrassing publicity about life insurance companies using the DMF to learn of deceased annuitants so that life annuity payments could be stopped, but not using the DMF to learn of deceased insureds so that death benefits could be paid where death claims had not been filed. I referred to the practice as "inconsistent" use of the DMF, and said the revelations prompted investigations by state unclaimed property agencies and state insurance regulators. The investigations referred to the practice as "asymmetric" use of the DMF. By contrast, where the DMF was used for both life annuities and life insurance, the investigations referred to the practice as "symmetric" use of the DMF.

Two Companies' Clean Bills of Health
After No. 159 was posted, several readers informed me that Massachusetts Mutual and its affiliates were found to be using the DMF in a symmetric manner, and the company therefore was not required to enter into a settlement agreement with regulators. Kevin McCarty, the Florida insurance commissioner, chaired the investigation by state insurance regulators and was featured in the segment. Here is an excerpt from a press release McCarty's office issued on August 20, 2013:
The examination of MassMutual, one of the largest insurers in the United States, found that it used information from the DMF to both make payments to the beneficiaries of life insurance policies as well as to stop annuity payments. As a result of this positive examination report outcome, a multistate regulatory settlement agreement was deemed unnecessary.
"The conclusion of this examination shows that despite industry practices to the contrary, MassMutual acted in an appropriate way by utilizing the DMF in an attempt to notify policyholder beneficiaries and provide them with the death benefits to which they were entitled," stated Commissioner McCarty.
When I looked further into the matter, I learned that United Services Automobile Association (USAA) and its affiliates also were found to be using the DMF in a symmetric manner, and USAA had not been required to enter into a settlement agreement with regulators. McCarty's office issued the press release about USAA on February 10, 2014. (On April 29, 2016, David Altmeier, a Florida deputy insurance commissioner, succeeded McCarty, who had been the Florida commissioner since 2003.)

Companies Entering into Settlement Agreements
I also learned about all the companies (and their affiliates) that have entered into settlement agreements with regulators. Here is a chronological list showing the names of the companies and the dates of the press releases about the results of the investigations:
John Hancock (May 18, 2011)
Prudential of America (February 2, 2012)
Metropolitan Life (April 23, 2012)
Nationwide (October 11, 2012)
American International Group (October 22, 2012)
Teachers Insurance and Annuity (June 24, 2013)
ING America (August 19, 2013)
Aegon US (September 11, 2013)
New York Life (October 24, 2013)
Aviva (November 21, 2013)
Midland National (November 25, 2013)
Lincoln National (December 10, 2013)
Genworth (January 21, 2014)
Sun Life of Canada (November 13, 2014)
Symetra Life (November 25, 2014)
Allianz Insurance (January 8, 2015)
Guardian Life (March 23, 2015)
Pacific Life (March 23, 2015)
AXA Insurance (December 17, 2015)
Jackson National (December 17, 2015)
Major companies still under investigation are AFLAC, Allstate Life, American Equity Investment, American Financial, American National, American United, Ameriprise Financial, Citigroup, Great-West Life, Hartford Life, Minnesota Life, Northwestern Mutual, Ohio National, Principal Life, Protective Life, Stancorp, State Farm, and Western & Southern. There seem to be no investigations of Aetna Life, Berkshire Hathaway, Connecticut General, Knights of Columbus, Manufacturers Life, Penn Mutual, Primerica Life, and Thrivent Financial.

The Search Procedure
The settlement agreements include a four-page exhibit entitled "Rules for Identifying Death Matches." The exhibit includes three categories of matches: "Exact Match," "SSN [Social Security Number] Match," and "Non-SSN Match." The exhibit also describes "Fuzzy Match Criteria," "Reports of Matches," and "Other Matches and Mismatches."

The National Standard
In a statement the day after the segment aired, the ACLI said 20 states have adopted a "national standard" along the lines urged by the ACLI. The states are Alabama, Arkansas, Georgia, Idaho, Indiana, Iowa, Kentucky, Maryland, Mississippi, Montana, Nevada, New Mexico, New York, North Carolina, North Dakota, Rhode Island, Tennessee, Utah, Vermont, and West Virginia. Those states have enacted laws based on a model developed by the National Council of Insurance Legislators.

The New Florida Statute
On April 12, 2016, Governor Rick Scott of Florida approved Senate Bill 966 on unclaimed life insurance. The ACLI has expressed two major concerns. First, the ACLI says the new Florida statute seems to require payment of a death benefit unless the company can prove the insured person is still alive. Second, ACLI says the statute seems retroactive in a manner that may violate the contracts clause of the U.S. Constitution.

An ACLI Report
In September 2014, the ACLI issued a 36-page report entitled Life Insurance, Unclaimed Property and the Death Master File: Toward a Uniform National Framework. One of the authors was the previously mentioned Mary Jo Hudson. This sentence is in the introductory section of the report: "These issues have become some of the most contentious in the history of life insurance regulation in the United States."

General Observations
Life insurance companies and state insurance regulators are making significant progress in addressing problems associated with unclaimed and unpaid death benefits, as well as lost policies and lost policyholders. However, a substantial amount of work remains to be done.

A Personal Anecdote
Massachusetts Mutual's clean bill of health, as discussed earlier, reminded me of articles I wrote in the January 1976 and July 1976 issues of The Insurance Forum. They were about the claims practices of Connecticut Mutual, which later merged into Massachusetts Mutual. In the first article, I reported on a letter I had received from a Connecticut Mutual agent. He expressed great respect for his company, and told me about a situation where the company had bent over backwards to honor a claim. In the second article, I reported on a letter from a Connecticut Mutual official who provided further details on the case. In the letter, the official expressed the company's "claim policy" as follows:
Our claim policy, to the extent it can be expressed in a few words and in general terms, is simply that we expect to pay all benefits that are supposed to be paid when they are supposed to be paid. Whether or not a benefit has been claimed is beside the point—if we have information to suggest that a benefit might be due, we pursue the situation and determine whether or not it is. Our claim practice does not include maximizing profit as one of its objectives—that's the job of other parts of the Company.
Available Material
I am offering a complimentary 59-page PDF consisting of the press releases about the investigations of three major companies that grew up in the industrial life insurance business, the press releases about the two companies receiving clean bills of health, a sample exhibit showing the rules for identifying death matches, the Indiana statute as an example of an unclaimed benefit law, my two 1976 articles about the claims practices of Connecticut Mutual, and the ACLI report. Email and ask for the May 2016 package about the "60 Minutes" segment.