N.Y. orders life insurers to use death master file

The New York State Insurance Department is requiring all life insurance companies operating in the state to report any death benefits that have gone unpaid because the insurers did not use the official government death list.

The department is investigating the effectiveness of the 172 licensed life insurers and fraternal organizations in determining when a policyholder dies and benefits should be paid. The reports from the life insurers are subject to department audits, officials said in a statement.

The government’s death list is supposed to be used by life insurers to ensure they promptly identify when policyholders have died, officials said in a statement.

The insurance department says it is working to prepare a regulation forcing insurers to use the list to ensure prompt payment.

Last month, New York Attorney General Eric T. Schneiderman issued subpoenas to at least nine life insurers to see whether the firms have adequately ensured payouts on policies of deceased customers, calling into questionwhether companies have done enough to identify dead customers and their beneficiaries, according to Reuters.

Subpoenas went to units of AXA SA , Genworth Financial, Guardian Life Insurance Co. of America, Manulife Financial Corp., Massachusetts Mutual Life Insurance Co., MetLife, New York Life Insurance Co., Prudential Financial and TIAA-CREF, according to Reuters.

Department officials are concerned that there may be instances where a death has occurred and no claim has been filed. If a life insurance policyholder dies and stops paying premiums, the company may continue to deduct the premiums from the account value until the value is gone. Or the life insurance policy, annuity contract or retained asset account may just sit dormant, with the funds still available to the insurer to invest, while the beneficiary is not paid.

Some life insurers use the U.S. Social Security Administration’s Death Master File, an up-to-date list of recent deaths, to promptly stop annuity payments once a contract holder dies. However, many insurers do not use the same Social Security death data to determine if any death benefit payments are due under life insurance policies, annuity contracts or retained asset accounts, according to state officials.

The department is requiring the 172 life insurers and fraternal benefit societies licensed in New York to use the available data to find where payments are due, locate beneficiaries, make payments and report on the results, beginning September 2011 and continuing for six months.

The department issued July 5 what is known as a 308 letter, which is a request for information to which insurers are legally required to respond. The information that the department is requesting is for each insurer to report on the results of using the Social Security’s Death Master File to identify any death benefit payments that may be due under life insurance policies, annuity contracts, or retained asset accounts as a result of the death of an insured or contract or account holder. Additionally, the insurers must report on their success in finding and making payments to beneficiaries.

The department also is moving forward with its efforts to amend the unfair claims practices regulations to require life insurers to perform regular SSA Master File cross-checks and to require life insurers to request more detailed policyholder and beneficiary information, such as social security number and address, to facilitate identifying deceased policyholders and locating and making payments to beneficiaries in the future.