As more insurance companies become targets of multi-state unclaimed property audits and market conduct exams regarding their claims handling processes, insurers must understand the differences between these two legal frameworks when fashioning responses to regulators and auditors. Click here for our prior Legal Alert: "Unpaid Insurance Benefits Issues Continue to Intensify."

The inconsistency between unclaimed property law and insurance law is resulting in turmoil in the context of unclaimed property audits. Insurers know state insurance laws and how they are enforced through market conduct exams. The exams are regulated and relatively uniform in application. By contrast, unclaimed property audits are producing non-uniform application of state statutes and inconsistent enforcement efforts via third-party contingent fee auditors.

Understanding the tensions between the two frameworks will enable company officials both to prepare effective responses to regulatory inquiries and to craft proactive best practices that protect the company on a going forward basis. Following are the top 10 ways unclaimed property audits differ from market conduct exams:

10. How do you spell relief? Unclaimed property audits generally provide no state administrative review process, whereas state insurance market conduct exams are highly regulated, are performed in accordance with NAIC standards and are subject to administrative review. If insurers disagree with the results of a market conduct exam, they can request a hearing. But if they contest the results of an unclaimed property audit, in most states the only avenue for relief is instituting a declaratory judgment action or waiting for the state to take an enforcement action. Arguably, the state unclaimed property administrators should first address any disputed issues. However, it appears that many unclaimed property administrators have essentially delegated their authority to their retained auditors and may not give meaningful review to their auditors’ conclusions. It is doubtful that state insurance commissioners would grant third-party examiners the same degree of discretion in the market conduct exam context.