Fri, Apr 18, 2014

Whistleblower Calls for Delaware to Challenge Gift Card Company Planning

The Life Insurance Industry has faced increased audit and regulatory scrutiny, in addition to media attention, for past practices relating specifically to death benefits. These multi-state unclaimed property audits, initiated by the third party audit firm Verus, LLC, have focused less on the property types traditionally reviewed for unclaimed property compliance and more on the following three (3) life insurance products: 

  • Annuities;
  • Life policies/death claims; and
  • Retained assets

However, while more attention has been devoted to these three products, the focus has been expanded to look not just on the issues that trigger a presumption of abandonment but on the industry’s use of the Social Security Master Death File (“Death Index”).

The life insurance industry at large has been affected by these audits and  several life insurance companies have reached recent multi-million dollar settlements with states as a result of the multi-state unclaimed property audits. Consequently, these settlements aim to resolve issues pertaining primarily to the industry’s inconsistent use of the Death Index for life policies versus annuities.

While the life insurance industry has been the primary target for this particular 3rd part audit firm for the last several years, the states and their auditor, emboldened by these large settlements, are expanding their industry focus to now include the financial services sector. This sector appears to have been selected, given: (i) the proposed expansion of the SEC 17AD-17 requirements to brokers and dealers to locate lost shareholders; and (ii) the financial services sector’s historic use of “RPO” versus “inactivity” standards to trigger the requirements for dormancy, which appear to contradict several states’ unclaimed property laws. 
 We expect that these audits will likewise be expanded and the focus will include more than standard compliance with the unclaimed property requirements to additional components of both industry and regulatory scrutiny.

Given the regulatory focus in the insurance industry, life insurance companies should continue to be vigilant by vetting their procedures and practices with the inclusion of the Death Index. In addition, brokers, dealers and securities-related companies should undertake the necessary measures to ensure strict compliance and adherence to both the SEC and unclaimed property guidelines.

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