On Death and Taxes

Posted by Richard Jacobson

Our business at times offers great insight into the concerns of the industry. Unusually large numbers of ‘permanent’ job openings in a specific area across multiple organizations usually mark a shift in industry trends. For instance, the growth of the use of predictive modeling, primarily in P&C personal lines, led to an emphasis on recruiting financial and data mining expertise. Unusually large numbers of temporary positions often mark an industry-wide reaction to an event or series of events.

The latest trend in the life insurance industry is clearly related to a number of state government actions known collectively as “Death Master” settlements. In a bid to raise revenues, many states have aggressively pursued “unclaimed property” on behalf of their citizens. Most states have taken the stance that they can collect such property and then spend the money on whatever budget shortfalls they have. If the property is later claimed by the rightful owner, the states make good on the claim. However, in most cases this never happens (I have seen different numbers on this, but it seems like the high end for return rates is about 30 percent) and the funds become part of the state’s general fund. As we all know, states have become more and more desperate to raise revenue to avoid benefit cuts. The latest hunting ground has proven to be unpaid life insurance policies. Just this week, MetLife agreed to a $500M settlement with California, North Dakota, Florida, Illinois, New Hampshire, and Pennsylvania to settle claims by these states that MetLife failed to use the Death Master index to identify deceased policyholders. This is simply the latest (and largest) in a line of these settlements going back to the Manulife settlement in April of last year and including the well-publicized Prudential Life settlement in February of this year. I expect more to come.

As part of these settlements, the insurers are typically required to perform quite a bit of research on beneficiaries, and this is where we have seen tremendous demand. Many of our clients are now trying to get ahead of the curve and are instituting procedures similar to those required in the Prudential settlement. Others are simply reacting to state investigations. In either case, the demands upon the claims departments are often overwhelming.