Unclaimed Life Insurance Property: Promises to Keep

Keeping the promise.

It's a euphemism often used to describe the payment of a life insurance claim.

Because, at the heart of the matter, it's the most important thing that life insurers do.

Case in point, U.S. life insurers paid a record $100 billion to life insurance beneficiaries in 2021.

But paying claims is also a task that is not without its share of challenges, both regulatory and operational.

The Rules

In the United States, most states have adopted some form of Unfair Claims Settlement Practices laws, which prescribe standards for prompt claim investigation and payments to beneficiaries, among other provisions.

State unclaimed property laws and a number of regulatory settlement agreements also provide an additional layer of requirements, including mandates for deceased searching, as well as timelines and reporting processes for the escheatment of unclaimed policy proceeds to the state.

All of these regulations come with hefty fines for non-compliance. To ensure compliance, insurers are also subject to undergoing numerous audits at their own expense.

The Life Insurer's Duty

At a fundamental level, the task of paying a claim begins with the knowledge that an insured has died.

In most cases, beneficiaries notify the insurer of the insured's death and file a claim for the policy proceeds and the process begins.

However, many situations differ from the norm.

Any number of plausible reasons exist for the failure of beneficiaries to file a life insurance claim.

Some insureds do not notify their beneficiaries of the life insurance coverage, so family members may not know a policy exists.

Or, the insured may have told the beneficiary about the coverage when the policy was taken out, but, over time, the beneficiary forgot about it.

In some cases, a beneficiary may become estranged from the insured and not know of the insured's death.

However, none of these scenarios relieves the life insurer from the obligation to monitor its books of business to determine which insureds have died, and then to proceed to search for and notify beneficiaries, in order to pay claims.

The Death Master File

For the longest time, the Social Security Death Master File was the undisputed benchmark source for data about the deceased, and many life insurers bought this data to perform searches.

Then, in November 2011, a series of events began to change that:

It was determined that Section 205(r) of the Social Security Act prohibits the Social Security Administration, or SSA, from disclosing the death records SSA receives through its contracts with states, except in limited circumstances. This change removed approximately 4.2 million records from the SSA Death Master File file in 2011 and has resulted in about 1 million fewer records each year thereafter.
A few years later, provisions in the Bipartisan Budget Act of 2013 further restricted access to decedent Death Master File records for a three-year period following the date of death.

The act provided for a fee-based certification process and prescribed permissible purposes under which the "limited access Death Master File" could be accessed. It also established penalties of up to $250,000 per person per year for improper disclosure or misuse of the information.

The act also required entities that access the Death Master File to submit a written attestation from an accredited conformity assessment body, or ACAB, certifying that proper information security protocols and policies are in place and being followed.

As the administrative hurdles and costs to access the Death Master File grew, the number of deaths in the database continued to shrink.

So, now that we're nearing a decade since the Bipartisan Budget Act of 2013, what recommendations would we make to the life insurers that work with your clients about deceased data searching?

1. Avoid do-it-yourself unclaimed property searches.

Buying, aggregating, normalizing, and linking data are not core competencies for most life insurers.

Yet, these are precisely the activities that are necessary for successful deceased data monitoring and matching.

2. Understand that searching the Social Security Death Master File alone is not enough.

Whether you're building mortality models, or searching for deceased insureds, it's important to understand that the Death Master File under counts the number of deceased individuals.

A life insurer needs to work with a private vendor that compensates by adding data about the newly deceased from other sources.

These supplemental deceased sources now provide more unique deaths each year than does the Death Master File alone.

3. Leverage deeper insight from the data.

Match codes and confidence scores help provide more precision and minimize false positives and false negatives.

Also, finding unique ways to leverage new insights from data sources like obituary notices improve matching, increases accuracy, and helps with beneficiary identification.

4. Cover the compliance bases.

A private vendor's data scientists and batch analysts can design deceased searches that comply with the most stringent regulatory settlement agreements and state regulations.

If a vendor maintains certification from the Accredited Conformity Assessment Body for the Social Security Death Master File, that relieves customers from the ACAB certification requirement.

Now more than ever, it's important to choose a trusted partner who understands both the power and the limitations with leveraging consumer data.

A commitment is needed to the responsible use of data to help life insurers keep promises — especially those that provide financial security and a better future for those left behind.

Jena Kennedy, FLMI, ALHC, ACS, CLU, is senior director, life insurance, at LexisNexis Risk Solutions. She is past president of the Georgia Association of Home Office Underwriters. ..