Over the past three years, more than 25 insurance companies have become subject to market conduct exams and unclaimed property audits by more than 35 cash-hungry states. Represented by Verus Financial, LLP (Verus), state auditors and insurance regulators are asserting that insurers have engaged in improper handling of life insurance policies and annuity contracts by failing to proactively identify death claims and locate missing beneficiaries. Verus claims that insurers consult certain government databases—e.g., the Social Security Administration’s Death Master File (DMF)— to terminate annuity payments when annuitants die, but do not consult these same databases to determine whether life insurance insurers or annuity contract owners have died in order to pay their beneficiaries. Verus further asserts that insurers throughout the industry have failed to timely escheat death benefits and matured policy/contract proceeds.

The Old Is New Again -

To date, regulators have focused primarily on the largest insurance companies. Indeed, the three unclaimed property settlements that regulators have reached to date have been with some of the industry’s largest players. However, recent developments confirm that state officials are now targeting mid-size life insurance companies, and that Verus is no longer the only auditor involved. Two other auditors have thrown their hats into the ring: Unclaimed Property Clearinghouse (UPCH) and Kelmar. Currently, these two auditing firms are representing state auditors and not Departments of Insurance, but that may change.

While UPCH and Kelmar are following in the footsteps of Verus, additional information about UPCH and Kelmar audits will be helpful to understanding the significant impact these auditors will have on mid-size insurers.