NAIC wants role on international reg agency

"The NCOIL Unclaimed Property Task Force is tasked with improving the NCOIL model law to make it more consistent and uniform," said Mary-Jane Wilson-Bilik, a Sutherland partner who has advised a number of insurers caught up in the long-running state regulatory and state treasurer unclaimed  property enforcement actions.

See also: International group blasts U.S. insurer regs

"But it remains to be seen whether NCOIL and the NAIC can work together to develop Social Security Death Master File (DMF) standards that are workable and responsive to industry concerns," she said.

But the parallel actions offer hope that regulators and state treasurers are moving away from the enforcement action phase of dealing with the issue to one long-sought by insurance companies and life insurance trade groups, providing guidance aimed at ensuring what the industry calls "fair and uniform" settlement practices. The industry wants a model law, regulation or guideline dealing with use of the DMF.

The industry has been dealing with the issue since 2008, when California state Controller John Chiang hired an outside software vendor, Verus Financial, to audit John Hancock. Chiang and Verus believed that John Hancock was using the Social Security Death Master File primarily to determine whether annuitants were still alive, and only spasmodically using it to determine whether a life insurance policyholder was alive. When the Verus audit found that the DMF was only being used "asymmetrically," Chiang commenced an enforcement action against John Hancock, and later expanded it to cover other large insurers. In 2011, other state regulators and treasurers got involved in the probe, which continues to this day. It is believed that 44 states are involved.

According to lawyers at Carlton Fields Jorden Burt, the NAIC (A) Committee Thursday appointed an Unclaimed Life Insurance Benefits (A) Working Group charged with "undertaking a study to determine if recommendations should be made to address unclaimed death benefits." Tennessee Insurance Commissioner Julie McPeak will chair the Working Group.

According to lawyers from Carlton Fields Jordan Burt who tuned in to the conference call, the Working Group will hold an information-gathering session of interested parties during the NAIC spring meeting March 31.

The Working Group will use this information in its discussions about next steps as it proceeds with the study. McPeak wants commentary and testimony from regulators, the industry and interested parties seeking to speak at the session to apply to the NAIC by March 19. Any written testimony or other information should be submitted to the NAIC by March 26, McPeak said during the conference call.

The NCOIL group, led by the co-Chair George Keiser, North Dakota,  outlined at the meeting the top structural issues that he believes the Task Force needs to address in order to create a more uniform and effective Model Act, according to lawyers at Sutherland Asbill & Brennan.

The Sutherland lawyers said one of the key issues is whether a new Model Act should be applied retrospectively versus prospectively. Another issue is the fact that the industry and regulators are seeking continued access to the DMF while the U.S. Commerce Dept. crafts a rule establishing a certification process to companies seeking access to the DMF. The Bipartisan Budget Act of 2013 establishes such a certification process effective March 26.

Because the Model Act requires that insurers run searches against the DMF, the Bipartisan Budget Act may render insurers unable to fully comply with the Model Act where it has been implemented by state law, those attending the NCOIL session were told. Other issues the Task Force needs to address include integration of the Model Act with the NAIC Unfair Trade Practices Act, which has been adopted in most states; and the scope of the Model Act's DMF search requirements; the proper scope of exclusions and exemptions in the Model Act. Sutherland lawyers said one issue of concern to the industry is the use of contingency fee auditors in unclaimed property examinations. There are now three companies vying with the states for this business, and they charge the insurers different fees based on whether the audit is being conducted by state insurance regulators or state treasurers. They are Verus, a unit of Xerox and Kelmar Co.

Sutherland lawyers said another issue raised at the Savannah meeting was the cost burden of the Model Act on small and mid-sized companies. One of the issued raised, the Sutherland lawyers said, is whether the Model Act should allow the insurance regulator to exercise discretion in order to limit or phase-in compliance with the law for small companies that may be financially burdened by the law.

The current model law was approved by NCOIL in 2011, and has been enacted in nine states, Sutherland said in its alert. They are Alabama, Kentucky, Maryland, Montana, North Dakota, New Mexico, Nevada, New York and Vermont. According to the Sutherland lawyers, it is pending in nine others: Georgia, Indiana, Iowa, Louisiana, Massachusetts, Oklahoma, Pennsylvania, Rhode Island and Tennessee.

See also:

• Fed role in insurance oversight a given
• Leonardi, NAIC slam FSB report on U.S. insurance system
• Insurance regulation: A big ship now in motion