The “New Normal” Unclaimed Property Landscape: How to Ensure Compliance & Maximize Business Benefits

 No longer can insurance companies afford to reactively address unclaimed property issues



By Valerie Jundt

Ms. Jundt is Managing Director, Keane Consulting & Advisory Services


The insurance industry has reached a tipping point in regards to unclaimed property. Insurance agencies have recently come under fire by state regulators for non-compliance with unclaimed property laws and failing to proactively search for beneficiaries entitled to proceeds from life policies. Specifically, they are being scrutinized for failing to: 1) regularly monitor the Social Security Death Master File (DMF), 2) proactively notify beneficiaries of policies, and 3) appropriately report policies as unclaimed property if a beneficiary is not located.

As a result, insurance companies are under the microscope of intense unclaimed property audits and conduct market survey examinations. No longer can insurance companies afford to reactively address unclaimed property issues. To survive in the “new normal” unclaimed property landscape, they need to take proactive measures to ensure compliance, reduce reputational risk, and minimize escheatment— now.

The Audit Landscape

Recently, audits have intensified as states enlist the help of highly motivated third-party auditors to perform audits and market conduct exams. The primary firm is Verus Financial, LLC, which has been retained by 37 states and is estimated to have been authorized to audit more than 20 insurance companies since 2008. Auditors like Verus are generally compensated on a contingency basis and incentivized to conduct aggressive and exhaustive audits.

Additionally, in May 2011, state regulators and the National Association of Insurance Commissioners (NAIC) created an unclaimed property task force with the goal of coordinating investigations related to these issues. These investigations and their findings have spurred unprecedented settlements that serve as cautionary tales for all insurance companies.

John Hancock Settlement

Audited by Verus, John Hancock Life Insurance Company was the first large insurance company to enter into an unclaimed property settlement. In May 2011, John Hancock reached an agreement with the State of Florida whereby the company agreed to reform its business practices, including monitoring the DMF on a quarterly basis to proactively identify deceased owners, to comply with the expectations of the Insurance Department as well as unclaimed property laws. In June 2011, John Hancock signed a similar deal, called a Global Resolution Agreement, with Verus that has been approved by 29 states to date.

John Hancock agreed to get more than $20 million in death benefits and matured annuities back into the hands of policyholders and/or their beneficiaries, restore the value of 6,400 California accounts dating back to 1992, and pay Florida regulatory agencies $2.4 million to cover investigative expenses.

Prudential Settlement

More recently in January 2012, Prudential reached a similar settlement with 19 states.  Prudential will not pay a fine, although it has agreed to restore the value of any affected accounts and pay the beneficiaries three percent compounded interest on the policy value. Prudential also pledged to comply with California laws and report unclaimed property on an accelerated basis when beneficiaries cannot be located.

Recently, audits have intensified as states enlist the help of highly motivated third-party auditors to perform audits and market conduct exams


The Road Ahead

Step 1: Monitoring the Death Master File

The National Conference of Insurance Legislators’ (NCOIL) Life Insurance & Financial Planning Committee has proposed an Unclaimed Life Insurance Benefits Act model law that states can  adopt to require insurers to periodically check the DMF database. The basic stipulations in this model are likely to become requirements — or at least generally accepted best practices — for all insurance companies in the next few years.

 On April 11, 2012, Kentucky passed HB 135, becoming the first state to enact a law modeled after the NCOIL language. This affects all insurers that have constituents in Kentucky, not just those who operate in the state.

The new law stipulates that life insurance companies must perform a comparison between in-force life insurance policies and retained asset accounts against the DMF, or an equally comparable database, at least on a quarterly basis to identify matches with insureds. In the case of a match, the insurer must, within 90 days, complete a good faith effort to confirm the death of the insured. If benefits are due, the insurer must use good faith efforts to locate the beneficiary(ies) and provide appropriate claim forms or instructions to make a claim. If beneficiaries or owners cannot be located, the benefits from a life insurance policy or a retained asset account, plus any applicable accrued interest, are required to escheat to the state as unclaimed property.

While Kentucky is the first state to enact such legislation, Alabama, Maryland, Tennessee, and, most recently, New York have also proposed legislation based on the NCOIL model.

Step 2: Proactively Locating Beneficiaries

Conducting these searches will uncover hundreds if not thousands of policies with assets that are at risk of becoming unclaimed property, making it imperative that insurance companies have established processes for rapidly locating and communicating with beneficiaries. By effectively doing so during the short window of time before assets are required to be reported to the state, insurance companies can maximize the assets that are recovered by those individuals. This not only benefits the insurer’s bottom line, but also helps them protect their customers and fulfill the intent of their contracts.

The quality of policyholder data that insurers have on record varies greatly, making this task a challenging one, and one that is not likely to be resolved by simple due diligence. However, with a certain degree of data analysis, data improvement, and manual outreach, communicating with beneficiaries can be done with great effect. As managing unclaimed property is not a core competency for most insurance companies and internal systems and resources are not adequately prepared to handle the influx of the regulations imposed, many insurers are choosing to outsource beneficiary location, compliance, and communication responsibilities to a specialist.



Recent events have forever changed the unclaimed property landscape for insurance companies. But with adversity comes opportunity. By embracing the “new normal” reality and effective programs to proactively manage and minimize unclaimed property reporting obligations, insurance companies can face compliance responsibilities and audits confidently, and ultimately focus on their core business offerings to maximize policyholder service and support for their clients.