Unclaimed life insurance policies

[Dumbdumb]

Anyone care to comment on what your company does with obviously unclaimed life insurance policies? Do they even watch for these things?

I expect to be speaking to a reporter on this subject (from my perspective) in the next month or so and I'd like to give him a heads up on what to expect when he does background research at the insurer level.

[Steve Grondin]

In the US, policies escheat to the state within a couple of years of maturity. IIRC, laws vary by state.

It can be difficult to track someone when you don't have SSN. Consider the difficulty in finding a child named by first initial and last name, with birth year and month on a family application taken in the 1930s. Business was assumed in 1940s by another company after premiums had all been paid.

[twig93]

Yep, what Steve says. There are some bad records out there and absolutely no way to find these people or even ascertain whether they are alive or dead.

States are clamping down on this as they want the funds to be escheated. They claim they're doing this in the public's best interest, but IMO they are hard up for funds and they figure that many of these policies are unpayable so it's just free money to them.

New York and California were two early states leading the charge to get life insurers to pay or escheat old policies. You can probably do a Google search and find some articles on the subject.

Ongoing insurers are collecting SSNs on all insured members, and can check records against the Social Security Death Index master file. It's just the old existing policies where you have a serious lack of data and no way to fill in the holes that are difficult to deal with.

To add some more color to Steve's example, imagine that you have a $500 life insurance policy that is paid up and valid. The insured's name is "S. Jones" and the DOB is "February 1893" and you have no other information on S. Jones. A perusal of old paper & pencil records from the 1950's indicates that at one point this person was listed as "F. Jones" on the reserving spreadsheets (the paper variety) and so you're not quite certain whether the first initial is really "S" or "F".

Mr. or Ms. Jones is likely deceased now, but how in the world can you possibly find someone's beneficiary and pay out if the beneficiary doesn't come forward??? At this point it's quite likely that the beneficiary is deceased as well - and maybe his or her beneficiary too...

This is a very realistic situation for many insurers.

[Gandalf]

One other situation, which could generate unfavorable publicity, is extended term as the nonforfeiture option. At least with a paid-up policy, you know that eventually a benefit is payable. If you cannot paid it to the beneficiary, paying per escheat is a reasonable solution.

If you have a 1000 policy which stopped paying premiums when the owner was 60, thus generating term coverage for 1000 to age 95, then what? When age 95 is reached, if the insured is dead, the insurer owes someone 1000. If the insured is alive, the insurer owes no one anything. How to know? Should the insurer rely on "no claim submitted, no payment due", a situation that clearly doesn't apply on the paid-up policies?

[twig93]

One other situation, which could generate unfavorable publicity, is extended term as the nonforfeiture option. At least with a paid-up policy, you know that eventually a benefit is payable. If you cannot paid it to the beneficiary, paying per escheat is a reasonable solution.

If you have a 1000 policy which stopped paying premiums when the owner was 60, thus generating term coverage for 1000 to age 95, then what? When age 95 is reached, if the insured is dead, the insurer owes someone 1000. If the insured is alive, the insurer owes no one anything. How to know? Should the insurer rely on "no claim submitted, no payment due", a situation that clearly doesn't apply on the paid-up policies?
Yeah, we had a few like this too. I think our methodology was that if no one filed a claim within 10 years (policy says claim must be filed in 1 year) and we had insufficient information to determine whether the person was living or dead on the expiration date we just assumed they were alive and let it go without payment or escheatment.

Those were pretty much all gone by the time I got seriously involved though so that's only a vague recollection. The paid up ones are ongoing. We dealt with all the others long before the states got involved.

[deathfrombelow]

Saw Met got pwned today on this....what was it, $100m?

[limabeanactuary]

here's some coverage:
http://www.lifehealthpro.com/2012/04/23/regulators-metlife-faces-at-least-500-plus-million?utm_source=LifeHealthProBreakingNews&utm_medium=eNL&utm_campaign=LifeHealthPro_eNLs

n its statement, MetLife said it is “appropriately reserved” for the claims, which stems from sale of industrial life insurance policies, i.e., small value policies, from the early 1900s to 1964.

The vast majority of the settlement will stem from MetLife’s agreement to “reconnect” with many of its oldest insureds (generally over age 90) who bought industrial life polices from the early 1900s to 1964.

MetLife said in a statement that “many of these either did not have a Social Security number or did not provide the company with a date of birth at the time their policies were issued.”

The total insurance in force for these "industrial" policyholders is approximately $438 million, for which the company is appropriately reserved, MetLife said.


So, I wonder how much the states will get a hold of through escheatment.... which is their real interest here

[deathfrombelow]

here's some coverage:
http://www.lifehealthpro.com/2012/04/23/regulators-metlife-faces-at-least-500-plus-million?utm_source=LifeHealthProBreakingNews&utm_medium=eNL&utm_campaign=LifeHealthPro_eNLs



So, I wonder how much the states will get a hold of through escheatment.... which is their real interest here

Wow, that is a huge chunk of change. Where do you stand on this MPC? I have mixed feelings. On the one hand, someone should have been paid. On the other hand, it shouldn't be the state. I'm not up on the legal dimension though....

[Doctor Who]

I've got SNL, and this is interesting.

MetLife Inc. will pay state insurance departments $40 million as part of a settlement over an investigation into its claims-payment procedures and compliance with unclaimed property laws.

$40 million is a nice chunk of change.

[deathfrombelow]

I've got SNL, and this is interesting.



$40 million is a nice chunk of change.

So it's $40m in settlement plus whatever of the $438m in inforce that they end up having to cough up, it seems....

[limabeanactuary]

I've got SNL, and this is interesting.



$40 million is a nice chunk of change.

It's barely anything to fill state budget deficits, once divvied up, but I'm sure it won't be pooh-poohed.


Thing is, I'm not sure what is part of the settlement, and how escheatment will be handled. Will the amount be escheated to the state where the beneficiary's address was? The covered life? The state in which the policy was issued?

In addition, when does/did the escheatment period begin? In many of these cases, they will never be able to tell definitively when (or if) the person died. These types of policies don't have a lot of info on them -- beneficiaries were supposed to contact the insurance company, after all, with the policy info under the standards of practice of the time. Not vice-versa.

Given this paltry info, I'm wondering how much effort the insurers supposed to be putting into finding the covered lives and beneficiaries. The states have an interest in the covered people being found to be dead, but not in the beneficiaries being found. My assumption is that the states will "help" find the dead, but it's up to the insurers to find the beneficiaries (and what happens if the beneficiary is dead... )

I assume all this was determined within the settlement itself.


I don't think the insurers should have been penalized for not searching for people on such little info. But I don't think the insurers get to hold onto the reserves indefinitely - these are paid-up policies, and I assume they'd be covered by escheatment laws.

[Doctor Who]

:ctm: at the word escheat.

[campbell]

Some updating of numbers:
http://www.lifehealthpro.com/2012/04/23/metlifes-landmark-unclaimed-property-settlement-co?utm_source=LifeHealthProBreakingNews&utm_medium=eNL&utm_campaign=LifeHealthPro_eNLs

[twig93]

To the extent that the insurers were figuring that some of the policies would go unclaimed and were factoring that into the premiums, I happen to think it's quite reasonable to let the insurers keep the reserve. The policies were written in such a way that clearly placed the onus on the beneficiary to file a claim.

Insurers knew that not all beneficiaries would. And it's hard for me to believe that they didn't factor this into the pricing.

[campbell]

To the extent that the insurers were figuring that some of the policies would go unclaimed and were factoring that into the premiums, I happen to think it's quite reasonable to let the insurers keep the reserve. The policies were written in such a way that clearly placed the onus on the beneficiary to file a claim.

Insurers knew that not all beneficiaries would. And it's hard for me to believe that they didn't factor this into the pricing.

It's more to the point what state escheatment laws say (and insurance regs).

I'm pretty sure the states aren't about to let a source of funds get away.

[twig93]

It's more to the point what state escheatment laws say (and insurance regs).

I'm pretty sure the states aren't about to let a source of funds get away.
True, but it would be reasonable to use the escheatment laws / insurance regs at the time the policy was written. Note that reasonable does not mean that's what would actually happen.

[Steve Grondin]

Insurers knew that not all beneficiaries would. And it's hard for me to believe that they didn't factor this into the pricing.
So, how do you think the mortality tables were developed? How do you think the data on "dead but no claim filed" was compiled?

One comment on the annuity/life ins difference in the Met settlement that might not be obvious to our non-US friends: Due to tax reporting requirements, annuities have had external (to the ins co) SSN requirements for much longer than life ins (which might not even to this day).

[JMO]

So, how do you think the mortality tables were developed? How do you think the data on "dead but no claim filed" was compiled?

One comment on the annuity/life ins difference in the Met settlement that might not be obvious to our non-US friends: Due to tax reporting requirements, annuities have had external (to the ins co) SSN requirements for much longer than life ins (which might not even to this day).
:iatp:
I have never in my :heynow: long actuarial career seen a pricing model that assumes beneficiaries will not file a claim. So long as no claim has been filed, permanent insurance remains in force and they company will pay if someone eventually provides appropriate claim documents. Term insurance is another matter, but again, if the appropriate claim documents show that death occurred during the coverage period, the claim WILL be paid.

And I don't think any regulatory actuary truly believes that companies deliberately try to hide from their beneficiaries.

Finally, when unclaimed property is turned over to the states, don't they have to make provision to pay it if a verified claimant appears? It seems very short-sigheted and unwise to spend all the money they are grabbing from insurance companies. JMO of course.

[campbell]

:iatp:
I have never in my :heynow: long actuarial career seen a pricing model that assumes beneficiaries will not file a claim. So long as no claim has been filed, permanent insurance remains in force and they company will pay if someone eventually provides appropriate claim documents. Term insurance is another matter, but again, if the appropriate claim documents show that death occurred during the coverage period, the claim WILL be paid.

And I don't think any regulatory actuary truly believes that companies deliberately try to hide from their beneficiaries.

Finally, when unclaimed property is turned over to the states, don't they have to make provision to pay it if a verified claimant appears? It seems very short-sigheted and unwise to spend all the money they are grabbing from insurance companies. JMO of course.

I assume the states have written the settlement/escheatment arrangements such that the beneficiaries will be out of luck should they appear too late.

[twig93]

:iatp:
I have never in my :heynow: long actuarial career seen a pricing model that assumes beneficiaries will not file a claim. So long as no claim has been filed, permanent insurance remains in force and they company will pay if someone eventually provides appropriate claim documents. Term insurance is another matter, but again, if the appropriate claim documents show that death occurred during the coverage period, the claim WILL be paid.

And I don't think any regulatory actuary truly believes that companies deliberately try to hide from their beneficiaries.

Finally, when unclaimed property is turned over to the states, don't they have to make provision to pay it if a verified claimant appears? It seems very short-sigheted and unwise to spend all the money they are grabbing from insurance companies. JMO of course.

1) I have been asked (by an FSA) to factor non-payment into my pricing calculation (and refused to do so on the grounds that for anything sold in this day & age we'd have to escheat anything unpayable). I'm guessing that it was possible that some other actuary before me took that into account. I might be wrong, but based on the way that this particular FSA asked me... I get the distinct impression that it's happened in the past.

Note that this FSA was in no way suggesting that we try to avoid paying claims in any way shape or form. Just that we take into account the inevitability that some of the claims would not ever be paid.

2) When unclaimed property is turned over to the states, they *do* have to pay it if a a valid beneficiary comes forward. I do not believe they have a requirements to make a "provision" to pay it (i.e. hold the money in some sort of reserve). And since it's government, they go ahead & spend it. For my part, every claim I've ever seen escheated (which is a LOT of claims, BTW) fell into one of two categories:
A) claims that will definitely be paid upon the occurrence of some future event (such as the conclusion of a murder trial and successive appeals) which is far enough in the future that the insurance company doesn't want to wait around and let interest accumulate
B) claims that the insurance company believes are unlikely to ever be paid

Other insurance companies, whose life claims methodologies I am less familiar with, may escheat more. I really don't know.

Anyway, if no beneficiary ever comes forward, the state just gets to keep the money. That's a non-trivial portion of the total - probably the majority.

[twig93]

I assume the states have written the settlement/escheatment arrangements such that the beneficiaries will be out of luck should they appear too late.
I don't believe this is the case. I asked an attorney about this at my company a few years back. Our policies all very clearly state that a beneficiary "must" file a claim within one year of the date of death. But it's a provision that's *never* enforced.

I asked the attorney about that and she felt that the provision only meant that after a year the insurance company was entitled to escheat. But there was never a point at which the beneficiary (or his heirs) lost the right to claim the unclaimed property.

At least that's my recollection / understanding of what this particular attorney said several years ago. Feel free to poke holes in this statement.

ETA: the one time I have seen the "one year" thing used 'against' a beneficiary is a case where a wife filed a claim on her husband who died 10 years earlier. Electronic records showed that we paid the claim 4 months after the husband's death (10 years earlier). Per the company's retention policy, the claim file was destroyed 7 years after payment, so there was really no solid proof that we'd paid the claim (such as a cancelled check). But we were quite confident based on the records that we did have that the claim in fact had been paid, despite the wife's ardent statements to the contrary.

The one year requirement was cited in the denial, as was the 7 year retention policy on claim files.

[sassafras]

I don't believe this is the case. I asked an attorney about this at my company a few years back. Our policies all very clearly state that a beneficiary "must" file a claim within one year of the date of death. But it's a provision that's *never* enforced.




A bit of a random post below....

We encountered the 1 year issue. We found a policy over ten years after my MIL died. The funds were listed on one of those "unclaimed funds" websites. We contacted the company and without any hassle, were sent the proceeds. The dollar amount was small, but they also sent a scanned copy of the original policy that showed my MIL's mother's original application information, written in her own hand. My "Grand-MIL" died young, so very few records of her existed. It was an extra "gift" to see her application.

[Dumbdumb]

A bit of a random post below....

We encountered the 1 year issue. We found a policy over ten years after my MIL died. The funds were listed on one of those "unclaimed funds" websites. We contacted the company and without any hassle, were sent the proceeds. The dollar amount was small, but they also sent a scanned copy of the original policy that showed my MIL's mother's original application information, written in her own hand. My "Grand-MIL" died young, so very few records of her existed. It was an extra "gift" to see her application.

One year to claim? Wowser, that's bad news. I provide consumers a service where I dig up lost life insurance policies, and I'm working on one now where they passed 4+ years ago. Clients have been digging most of that time unsuccesfully, through no fault of their own. And I've seen two cases where claims are delayed or never actually claimed for emotional reasons (i.e. a child passes, and parent can't bear to make the claim). Claim payment has the potential to be the best part, and the worst part of the life insurance industry.

[sassafras]

One year to claim? Wowser, that's bad news. I provide consumers a service where I dig up lost life insurance policies, and I'm working on one now where they passed 4+ years ago. Clients have been digging most of that time unsuccesfully, through no fault of their own. And I've seen two cases where claims are delayed or never actually claimed for emotional reasons (i.e. a child passes, and parent can't bear to make the claim). Claim payment has the potential to be the best part, and the worst part of the life insurance industry.

I guess the point is that even if the "1 year" claim time is what the company asks, they don't always make that an issue. The policy we cashed in was very old, but the company was very willing to send the funds once they knew where the money belonged.

I think your service sounds great. If I hadn't been pretty far removed (time wise) from the loss and had been less willing to jump through all sorts of hoops we wouldn't have gotten our money back. (After 10 years, I had a tough time finding a death certificate.) It can be a long and involved process, so your service sounds like something people would like.

[Steve Grondin]

My former employer had a large block of funeral contracts written in-state. It is common to this day for funeral homes to call at the time of the funeral to do a search for any contracts the deceased might have had. But many people move out of state and are buried out of state, so especially if they were a child on a family policy, their benes might never know to ask.

That was an interesting request you got, twig. Did you ask where to get the data to model it? Could it be they were just looking to drive down the price? That's quite different than reserving on that basis, imo.

ETA- my old boss' favorite story. A 3 yr old claim (death to filing of claim) on a SPWL. Because "my husband (insured) bought it as an investment"

[Numbers Nerd]

The practice that bothers me is the following, which I've read that some companies do routinely:

Premium payments stop coming in on a permanent policy such as whole life.
Automatic premium loans kick in, tapping the policies cash value and entering the companies books as premium income. (APL is the default nonforfeiture provision in many policies)
Eventually the net cash value goes down to zero, at which point the policy lapses.
So, the beneficiary doesn't get the money, and the state doesn't get the money, and the company gets to keep everything. If the company did this, and never checked the SS death master file, I just can't accept the notion that this is acceptable practice.

[Steve Grondin]

APL non4 option can be a problem in the same way ETI is. I think that you have to remember how things were different many years ago (wrt SSN death master and SSN data) to think why some things were acceptable then and still affect processing today.

But one thing to consider is that on a premium paying policy, there is much more recent connection between the company and the insured. Especially for debit/industrial insurance, where the agent collected the premiums. The agents loved to deliver the DB check. It reinforced why people wanted insurance in the first place. This is why the problem of locating deaths is much more prevalent on paid up business, especially those that finished paying decades ago.

Some companies used APL in the following manner to reduce the likelihood of what you described:
APL for 1 year (as a convenience - easier to pay back loan than produce EOI to show why you can go back from RPU), then to RPU.

Another problem with APL to no value is that imagine a claim comes in long after the policy has been written off for loan > csv. It might not be on the admin system anymore. You have to figure the loan balance as of DOD to see if it exceeded the CSV at the DOD to decide whether to pay the claim. The next admin decision (assuming the contract is silent) is what loan balance do you use to compute the net DB? As of DOD? As of date claim was received?

[twig93]

One year to claim? Wowser, that's bad news. I provide consumers a service where I dig up lost life insurance policies, and I'm working on one now where they passed 4+ years ago. Clients have been digging most of that time unsuccesfully, through no fault of their own. And I've seen two cases where claims are delayed or never actually claimed for emotional reasons (i.e. a child passes, and parent can't bear to make the claim). Claim payment has the potential to be the best part, and the worst part of the life insurance industry.
I think that so long as the insurance company feels that the claim is otherwise valid, they're not going to press the one year issue.

Where it becomes relevant is if the insurance company feels that the claim is not otherwise valid. As in my example where our records showed that we'd already paid the claim to the very same beneficiary.

[twig93]

My former employer had a large block of funeral contracts written in-state. It is common to this day for funeral homes to call at the time of the funeral to do a search for any contracts the deceased might have had. But many people move out of state and are buried out of state, so especially if they were a child on a family policy, their benes might never know to ask.

That was an interesting request you got, twig. Did you ask where to get the data to model it? Could it be they were just looking to drive down the price? That's quite different than reserving on that basis, imo.The FSA was *definitely* looking for any excuse possible to drive down the price. I said that I was willing to lower the price as a "business decision" but was not willing to call the reason "because we probably won't have to pay some of the claims". He wanted me to assume that from inception of the product line, everyone we'd ever sold to currently over 100 is dead, and what percent of them haven't had claims filed yet. I didn't like that approach for a variety of reasons, not the least of which is the fact that people live past the age of 100 all the time. And just because a claim hasn't been filed yet doesn't mean that it never will be. And beyond a certain point, records were not electronically kept.

ETA- my old boss' favorite story. A 3 yr old claim (death to filing of claim) on a SPWL. Because "my husband (insured) bought it as an investment" It depends on the state of situs of the policyowner, and the state of residence of the beneficiary (which was presumably the same as the state of residence of the deceased if they were married.)

When old claims are paid, you have to look at the interest regs in all three states (if they are different) and pick the one most favorable to the beneficiary. If interest was payable from 90 days after date of death, as it is in some states, at a rate of, say, 6 or 8%, as it is in some states, then it was a very wise decision for her to wait to file a claim. In fact, she probably should have waited longer. Where else can you earn a guaranteed 8% these days?

If interest is only payable from the date the insurance company receives proof of loss (which more states are moving towards) then this is - of course - ludicrous. Without knowing the states involved and the date of death... there's not enough information to determine the rationality of this action.

[Steve Grondin]

The FSA was *definitely* looking for any excuse possible to drive down the price. I said that I was willing to lower the price as a "business decision" but was not willing to call the reason "because we probably won't have to pay some of the claims". He wanted me to assume that from inception of the product line, everyone we'd ever sold to currently over 100 is dead, and what percent of them haven't had claims filed yet. I didn't like that approach for a variety of reasons, not the least of which is the fact that people live past the age of 100 all the time. And just because a claim hasn't been filed yet doesn't mean that it never will be. And beyond a certain point, records were not electronically kept.

Pretty crazy if I understand it correctly.

How many contracts who are in-force with attained age over 100 have never filed claims?

Um, all of them?

So the company experience-based mortality study already takes them into account, as would a industry study.

I suppose if you were blending into a population based mortality above a given age you might assume a certain proportion of your age 100 folks were already dead. Does the tail really move the price that much?

[twig93]

Pretty crazy if I understand it correctly.

How many contracts who are in-force with attained age over 100 have never filed claims?

Um, all of them?

So the company experience-based mortality study already takes them into account, as would a industry study.

I suppose if you were blending into a population based mortality above a given age you might assume a certain proportion of your age 100 folks were already dead. Does the tail really move the price that much?

It's not quite as bad as what you're saying.

This was a SPWL product that had been around for about 40 years. His idea was this: Start with the population of anyone that we'd ever insured over the past 40 years. Eliminate anyone with a DOB less than 100 years ago. For the remaining population, take the number with unpaid claims and divide by the total. Assume that percentage of benefits will never be paid.

So suppose the company has ever insured 500,000 people with this type of SPWL insurance. 480,000 have DOBs within the last 100 years. Of the remaining 20,000, there are 200 whose claims have never been paid. Assume that 200 / 20,000 = 1% of claims on new business will never be paid. This effectively means taking the face value of a new case and multiplying it by 0.99 and then calculating the premium "as usual".

He wasn't saying to adjust actual mortality assumptions.

Oh, and obviously the STAT reserve would be unaffected as CRVM makes no such provision and the CRVM reserves are so high that I can't imagine anyone voluntarily holding a higher reserve. We certainly didn't. This was a small enough product line that, at the time, we didn't bother with calculating a separate GAAP reserve (which would have been lower, had we bothered, but we just set GAAP = STAT).

So it was only a matter of how the premium was calculated.

[anon3]

Well I wish I could say that is surprising, or shocking, or unexpected. But it's not. It's typical behavior for a government agency. They put additional requirements and regulations in place for private industry to follow, and fine some larger unlucky companies for never having previously followed those practices, which they themselves did not follow either.

http://www.foxnews.com/politics/2013/05/28/mass-audit-finds-millions-dollars-handed-out-to-dead-welfare-recipients/

I think we need a larger more invasive government with tentacles reaching into more and more aspects of our lives so that this type of problem goes away [/sarcasm]