Life Insurance
Unclaimed Life Insurance: Insurers Grapple With a Problem That Resists Elimination

• Terrence Dopp
• April 2021
• 

Key Points

• People: Beneficiaries must file a claim, and often that is complicated when they don’t even know a policy existed or after companies have changed hands multiple times.
• Companies: Insurers gained buckets of bad ink years ago for the accusation they weren’t aggressive enough in tracking down those to whom they owed money.
• Today: The issue has quieted down as a front-burner topic thanks to increased monitoring, new requirements and technology. But it hasn’t gone away and some cases fall between the cracks.

No one really wants to leave money on the table, but it happens.

Unclaimed life insurance payouts are a nettlesome fact of an industry built upon the premise that for centuries, people who made monthly payments could be assured that when they died, their heirs would receive the policy's face value. But even in an age when there's a camera on every street corner and emails get archived for years, some small sliver of the insured population falls between the cracks.

By some estimates, it can be upward of $7 billion, and the causes can vary.

While past instances usually centered on companies being deemed not aggressive enough in tracking down beneficiaries, today the problems more commonly include beneficiaries not even being aware that policies are in force or not having enough data to keep track of them.

“I would not refer to it as a big issue, but I think it's the kind of situation where if it happens to you as an individual or as a family—it's extremely important,” said Michel Leonard, vice president and senior economist at the Insurance Information Institute. “Certainly as an industry we do everything we can to make sure that doesn't happen.”

The money involved may not be enough to sink the life insurance business, but it remains an issue for both the carriers who agreed to pay the death benefits and those slated to receive them. Compounding this relationship is the fact that the very beneficiaries who stand to gain may not have complete policy numbers, company names or, in some cases, don't even know a relative had a policy at all. After all, life insurers can carry a policy for decades before it comes due.

A Rough Decade

The issue, however, has been a big problem for many of the industry's life insurers, resulting in litigation and fines.

In 2019, New York State's insurance regulator ordered MetLife Inc. to pay a $19.75 million fine and $189 million in restitution over its failure to adequately track 13,712 New York annuitants to whom it owed pension payments.

Also that year, Protective Life, Allstate and Great West reached their own settlements with the Pennsylvania Department of Insurance over claims they were not paying death benefits properly in all cases, bringing to 30 the number of insurers that settled with Pennsylvania over the issue.

The issue took on increased prominence early last decade, when a series of high-profile court cases made headlines and life insurers entered into settlements with state regulators over unclaimed benefits.

In 2013, New York Life Insurance Co. agreed to pay $15 million to state insurance regulators in a settlement over its use of the Social Security Administration's Death Master File database.

At the heart of the cases in the past was the manner in which companies used the federal Social Security Administration's Death Master File to seek out and stop payments to deceased annuity holders but not to find out and identify any insurance payouts that may have been due. The problem is that the issue is partly federal but also, like most of the insurance world, regulated by states.

As a rule, life insurers have faced more requirements to check the ranks of lapsed policies against the Social Security agency's master list since the issue came to a head. If the company cannot find the beneficiaries, the money is then escheated, or handed over to state governments which then take on the responsibility to track down the rightful recipients as they would with any unclaimed property.

Along the way, there are both state and national databases that can help beneficiaries track down potential policies. States use websites that allow residents to search for any unclaimed property. States and industry groups also maintain life insurance-specific tools.

The National Association of Insurance Commissioners (NAIC), the trade group that represents state regulators, maintains its own Life Insurance Policy Locator that allows consumers to connect with potential benefits. That tool was launched in November 2016 and through last summer (the most recent figures available) had received 145,432 requests that led to 46,665 matches of life insurance policies or annuities with claim amounts of $651 million.

Users register with the NAIC by logging information, and the search toll then asks participating companies to search internal records to determine whether they have a life insurance policy or annuity contract in the name of the deceased. It then plays matchmaker by asking any insurers that have policy information to respond directly to the requester if they are the beneficiary or authorized to receive information.

Another industry group, the American Council of Life Insurers, has pushed since 2012 for states to adopt a model national standard for the requirements placed on insurance carriers. About three dozen have mandated life insurers use new technologies to identify policyholders who died but whose beneficiaries haven't made a claim.

Widespread Issue

Companies including MetLife, Prudential Insurance and John Hancock reached multimillion-dollar settlements for not tracking down beneficiaries after policyholders died. In the cases of Prudential and MetLife, the cases came about a decade after they demutualized.

MetLife in a 2017 audit said it had an “operational failure” as it increased its reserves by $510 million pretax after a review found deficiencies in the way it looked for unresponsive annuitants. The company looked back 25 years and found about 13,500 annuitants who didn't receive benefits.

MetLife has improved its processes for tracking down beneficiaries over the course of years, spokeswoman Kim Friedman said. The company now engages third-party sources beyond the federal Death Master File and partners with Lexis Nexis to expand its reference base. The company also refocused its own internal handling of the cases and expanded the data points it uses.

“In 2019, we paid more than $7 billion in life insurance claims in the United States,” she said. “We paid about $125 million to beneficiaries as a result of our enhanced search efforts. And we escheated roughly $90 million to the states when a beneficiary could not be found.”

In Minnesota alone, Lincoln Financial, Voya, Prudential, Transamerica, Axa Equitable, Jackson National and New York Life entered into settlement agreements last decade with the Department of Commerce to make good on “unpaid insurance policies, annuity contracts and retained asset accounts” to consumers in that state.

Todd Erkis, a professor in the risk management department at St. Joseph's University near Philadelphia said the main issue in the past was that many of the instances of unclaimed benefits involved so-called industrial life insurance.

The term covers small policies—typically a face value of $10,000 or less—and a broker who collected weekly or monthly premiums. Industrial life was typically designed to cover burial expenses and the policies were often aimed at factory workers. The products have largely been replaced with updated term and group policies that are registered electronically and offer less chance for them to fall between the cracks.

“There weren't electronic payment collections, people weren't sending in checks. This was literally, people going from house to house and collecting weekly payments,” he said. “Most of those policies they weren't collecting premiums for anymore, so therefore the heirs didn't even know that those policies existed. Those policies have all been paid off by the insurance companies at this point.”

Finding Solutions

Leonard, of the Insurance Information Institute, said the issue is difficult to address in part because it involves solutions that are technology-based. For consumers who bought policies in the past, many are elderly or other segments of the population that may be less fluent in technology therefore it gets compounded. He said the industry has taken steps to ensure that those owed money don't get overlooked and can obtain all of the policy information they need.

For companies, that means transparency and finding a way to grant consumers access to those pieces of information they don't have such as policy numbers.

He compares that to the banking industry, which saw a wave of consolidation in the past three decades, yet banks were able to transfer in account holders from acquired institutions and make the transition seamless in most cases. The same holds true in the insurance world, where a wave of consolidation left companies handling policies that may have originated decades ago by companies that possibly changed hands multiple times, he said.

“It's reputational risk of course, but at the end of the day these are life-changing financial products that people buy,” Leonard said. “It's very important for people to have access to those and we take it very seriously. Of course there's a reputational risk if we aren't able, as an industry or an individual carrier, to do it.”