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Maine Treasurer's Office Leading the Charge to Ensure Life Insurance Benefits Are Paid Out

If you have a life insurance policy, and then die, you might expect that the benefits would automatically be paid out. But audits of the nation's biggest insurance companies reveal many instances in which they haven't paid, even when they've known that the policy holder died.

The reason that some of those companies cite is that they are only obliged to pay when they receive a claim for benefits. The practice was highlighted this past Sunday in a report on the CBS news program 60 Minutes. Its a problem that's well known to insurance regulators here in Maine.

The 60 Minutes analysis found that the insurance companies have not paid benefits on millions of policies. Some states have now challenged that practice. In fact, CBS says that 25 insurance companies, without admitting wrongdoing, have agreed to pay more than $7.5 billion in back benefits in a series of settlements reached with states across the country, including Maine.

"We have signed on to a couple of settlements that were the result of audits that we were a part of on a national scale, and we have received payouts from them," says Kristi Carlow, Maine's deputy state treasurer.

She says her department takes part in audits that are designed to assure that companies are in compliance with national unclaimed property laws, and that they are paying benefits when they receive a notice of death. She says in some cases, an audit will reveal that benefits were not paid.

"Let's say for example they can't find the beneficiary, but they know that someone has died, then three years after that obligation to pay came about, if they're still holding it they're required to sent it to the state treasurer's office for the unclaimed property program," she says.

Carlow says not all of the nation's insurance companies are willing to send those delayed benefits to the unclaimed property program, because they don't believe they are obliged to do so, unless they receive a claim. And she says Maine and most other states don't require insurers to proactively search the Social Security Administration's "Master Death File," to pay benefits that are due. The Maine Bureau of insurance says that's a problem, because many survivors may not know which company is involved, or may not even be aware that a policy exists.

"Insurance regulators in Maine and across the country have grown increasingly concerned that even when the insurance company has knowledge of the death of a policy holder, they are not contacting the beneficiaries," says Doug Dunbar, Spokesman for the Maine Bureau of Insurance.

He says thanks to a national investigation by state insurance commissioners, insurers representing nearly three quarters of the life policy market have agreed to be more vigilant in assuring that beneficiaries are getting paid.

"They are being made to pay penalties to cover the costs of these investigations and they are regulatory scrutiny for years to come to make sure they are changing their practices and doing the right thing as we think they should do as regulators," he said.

Still another 35 companies have refused to enter settlements with the states, pointing out that the law allows life insurance companies to require claims be filed in order to trigger payment.

"That's true for every type of insurance...if you had a homeowners policy, we don't expect the insurance company to check with the fire department and call you up and say, They said you had a fire in your kitchen, so we're going to send you a check," says Dr. Steven Weisbart, chief economist at the Insurance Information Institute.

He says that going forward, most in the industry are will to accept reasonable requirements aimed at confirming deaths of policy holders and finding beneficiaries. But he says there's some difference of opinion within the industry as to whether these requirements should be applied retroactively, and how far back.

"You can imagine a policy bought twenty years ago that would have ended 15 years ago and the question then becomes did the person who was insured under that policy die before the end of the term?" he says. "You could go back and figure that out, but its not easy for a small company that doesn't have a big budget and especially when doing so retroactively asks that the company do certain things that it never planned on doing."

In the meantime, the National Association of Insurance Commissioners' is drafting a model law that would require all life insurers to use the Death Master File database to identify deceased policyholders.

And the Uniform Law Commission is also considering changes to the federal unclaimed property law, and last week, Florida became the first state to implement sweeping legislation requiring life insurance companies to search the Social Security Death Master File and track down beneficiaries.

Dunbar provided a list of the settlements Maine has signed onto:

Pre-2013:
AIG - $27,851
John Hancock $58,647
MetLife $164,754
Nationwide $15,170
Prudential $58,694

2013:
ING - $81,231
TIAA-CREF - $35,724
Transamerica - $22,866

2014:
AVIVA (now Athene) - $13,335
Genworth Financial - $8.865
Lincoln National - $76,409
Midland National - $16,244
New York Life - $52,927
Sun Life - $11,316
Symetra - $7,867

2015:
Allianz - $27,607
Guardian - $6,809
Pacific Life - $10,301

2016:
AXA Equitable (payment pending; minimum of $14,285 expected)
Jackson National $12,168

The dollar amounts are the civil penalties allocated to Maine (rounded to the nearest dollar). All civil penalties go to Maine's general fund.

Read more about Unclaimed Insurance Benefits

View a sample Regulatory Settlement Agreement