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Unclaimed Property Update AFA 2013

Unclaimed Property Update AFA 2013. MARY JO HUDSON. Unclaimed Property Audits – Dormancy Triggers and Audits. Dormancy Triggers Utilized for Reporting Over Past 70+ Years – Policy claim – Maturity If no claim, limiting age – If no claim, “knowledge of death” (19 states)

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Unclaimed Property Update AFA 2013

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  1. Unclaimed Property UpdateAFA 2013 MARY JO HUDSON

  2. Unclaimed Property Audits – Dormancy Triggers and Audits • Dormancy Triggers Utilized for Reporting Over Past 70+ Years – Policy claim – Maturity If no claim, limiting age – If no claim, “knowledge of death” (19 states) – No definition of “knowledge” in statutes or regulations – Insurance policies and insurance product standards and claims handling laws all use submission of a claim and due proof of death as triggering “knowledge” • States - New Dormancy Trigger Theory – Date of Death & Not Limiting Age • Date of death makes policy due & payable • State does not need to make a claim • DMF hit validates death • DMF searches required (variety of theories)

  3. Unclaimed Property Audits & Settlements • Unclaimed property audits • Most of life insurance industry targeted • Contingent fee auditors • Primary audit firms - Verus, UPCH, ACS, Kelmar (only one needed) • Alleged dormancy trigger - “date of death” • Seeking full file review – life, annuity , RAA • Settlements - Global Resolution Agreements (GRA) • GRA Terms • Multi-year reconciliation process with monthly DMF reconciliations (netting prior company searches) using Verus fuzzy matching logic (referred to as DMF Protocol) • Interest of 3% paid on all life proceeds paid from date of death • Release for prior reported property and property reported via GRA • Company waives right of administrative appeal

  4. Requirements for DMF Searches, Beneficiary Contact & Death Claims • MCE Settlements/ New Law Terms Address Use of DMF and Contacting Beneficiaries • MCE settlements – Prudential, MetLife, Nationwide, AIG, TIAA-CREF, ING • NCOIL Model Law (AL, KY, MD, MT, ND, NY, NM, NV, VT) • Emphasis on (1) DMF search (2) beneficiary contact if death identified, (3) accelerated unclaimed property reporting • Beneficiary Contact • Locate beneficiary (2 or 3 attempts via mail & telephone -settlements) • Good faith effort (NCOIL) • Still able to require documentation and due proof of death/death certificate

  5. DMF Search Frequency & Method • Search Frequency & Method - Varies • NCOIL Model Law – semi-annually /simple search • KY – quarterly/simple search • NY – quarterly/complex search • AL – every 3 years/simple search/prospective • MD, MT, NM, VT – semi-annually/simple search • ND, NV – semi-annual/complex search • More frequent = more resources • More complex (fuzzy) = more false positive hits & more resources

  6. Risks Due to Lack of Standards • False Claims Actions by state AG’s alleging that unclaimed property filings should have been calculated with date of death dormancy – MA, MN & NY • Market conduct actions by insurance regulators alleging faulty use of DMF searches (currently almost 30 pending via contingent fee examiner) • Class actions against life insurance companies (Ohio actions – so far unsuccessful) • Additional unclaimed property exams with 20 year look back on insurance and annuity business

  7. Litigation Update • Recent developments – Positive Rulings • Florida Qui Tams dismissed, with findings that companies had no statutory requirement to conduct DMF searches • Total Asset Recovery v. MetLife, Inc. et. al. (2nd Cir. Ct., Leon Co. FL., Case No. 2010-CA-3719 (8/20/13) • Other defendants included Manulife (John Hancock) and Prudential • MA and IL Insurance Codes do not require DMF searches • Feingold v. John Hancock Life Insurance Co. U.S. Dist. Ct., MA Dist. (Case No. 1:13-CV-10185-JT)(8/20/13 Order)

  8. Litigation Update • Pending Matters • Thrivent - FL Petition for Declaratory Statement with FL Department of Financial Services • Challenges legal basis for requesting DMF searches in unclaimed property audit • American National Insurance Co. & Kemper Companies – Defending Litigation in CA brought by CA Controller • Claim lack of cooperation in audits for failing to deliver all policy files for “DMF Protocol” • West Virginia – Over 60 separate actions brought by State Treasurer against life insurance companies • Claiming unclaimed property code supports “good faith duty” for companies to search DMF regularly

  9. Statutory Interest • Statutory interest laws intended to incent prompt payment of claims; not updated in decades • Both insurance and unclaimed property codes silent • Laws written before DMF developed • No prior requirement to search DMF in either code • Treasurers/Auditors seeking to include • NY – court & administrative opinions to pay interest if a claim was filed • VT – added NCOIL Model to UCP Code and added cross reference to insurance code statutory interest • Proposed in MA • Consider carefully so consistent with settlements and reporting/audit defense strategy

  10. New Best Practices • DMF Search of life and annuity business • Utilize a service that uses matching logic from NCOIL at minimum or with some “fuzzy” logic • “Full Fuzzy” logic (up to 21 levels) may produce large number of false positives • Account for some numerical transpositions and name variations (test levels for best returns based on resources) • If search indicates possible death, establish procedures for verification of death, and for contacting beneficiaries • Establish procedures for obtaining current address of beneficiary • Establish regular frequency for searches – stagger searches if necessary

  11. New Best Practices (2) • Communication between life & annuity operations • Assure all reported death information is shared and claim information sent out to all beneficiaries • Link return mail findings to outreach efforts if death identified • Unclaimed property reporting • Dormancy triggers - stay current on state guidance • If search DMF, consider using date of DMF hit or validation as dormancy trigger across board – limit risks • Written policies & procedures • Multiple beneficiaries /Minor beneficiaries/Foreign Addresses • Annuity maturity procedures • RAA’s/Suspense Accounts

  12. Lost Policy Search Program • Insurance department or AG programs to assist consumers with locating lost life insurance policies and annuity contracts • Currently in LA, MA AG, MO, NY, OH, PR, TX • RI has legislative authority for program • Varying standards – no model to date • Reporting of outcomes • Detailed claim information from consumer (including death certificate) • Limited data formats • Standards unclear

  13. Questions? MARY JO HUDSON BAILEY CAVALIERI LLC 10 W. BROAD ST., SUITE 2100, COLUMBUS OH 43215 614-229-3292 maryjo.hudson@baileycavalieri.com

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