Updated with number of remaining exams, per California.
Sept. 13, 2020 — Principal Life Insurance Co. and Principal National Life Insurance Co. and state regulators quietly settled a death benefits exam underway for seven and a half-years for $145,000, a small cost amounting to housekeeping compared with the multi-million dollar settlements incurred by other life insurers undergoing similar exams.
Without admitting “any liability whatsoever,” The Principal agreed to the amount to cover the “examination, compliance and monitoring costs incurred by the departments associated with the multi-state examination.
The Principal’s exam began in December 2012, a spokesperson for the company and the California Department of Insurance confirmed.
The action could indicate that the unpaid benefit exams for life insurers are now winding down after the enormous settlements and high-profile cases that emerged at the outset of the state regulatory process.
A settlement was reached in June and a copy filed with state insurance departments in July. The $145,000 remittance covered “the examination, compliance and monitoring costs incurred by the departments associated with the Multi-State Examination.”
A handful of state insurance departments launched Social Security Administration’s Death Master File targeted examinations of life insurers beginning back in 2011 to review practices into whether policyholders’ beneficiaries were getting paid when the contract holder died.
The lead states in the DMF initiative are California, Florida, Illinois, New Hampshire, North Dakota, and Pennsylvania. •
They sought unpaid death benefits due under the insurers’ life insurance policies and annuity contracts as well as unpaid proceeds due under matured annuities.
These state regulators, with the use of the auditing firm Verus Financial LLC, combed through insurers’ policies and procedures and use of the DMF database for unclaimed property.
In the case of The Principal, the regulators stated they found only “potential concerns regarding the adequacy of the company’s policies and procedures” in getting insurance policies paid in timely manner to beneficiaries, according to the settlement.
The company said it disputes any potential concerns identified by the Departments and denies any wrong-doing or engaging in any activities but said it wished to resolve and differences instead of creating or prolonging any further proceedings.
The company agreed to use its best efforts to find and contact the beneficiary, making at least two attempts to contact the beneficiary in writing at the address maintained in the company records and other standard protocols as a matter of course.
Life and annuity insurers had paid over $9.7 billion to life insurance beneficiaries nationwide,” as a result of the multi-state exams as of August 2018, the California department trumpeted in 2018 in detailed report of the multi-state exam process. The group of “insurers have escheated approximately $33 million in unclaimed benefits to state unclaimed property officials, the report stated.
The outside firm who auditing insurance companies to identify unclaimed property also got a percentage of the remittances to states’ unclaimed property funds.
The first such multi-state settlement, in February 2012, was with Prudential Financial for $17 million, to be split among the states participating in the settlement. MetLife’s settlement followed, reaching $40 million, in August 2012.
State regulators in the lead states alleged that the life insurance industry “selectively used” the DMF database to cut off their payments to deceased annuity holders but did not use the database when it came to seeking information on the death of policyholders to whose beneficiaries they would owe payouts.
In general, if insurers cannot not find the beneficiaries after searching for them, they are required to send the money to the state controller as unclaimed property.
Many insurers adamantly denied they had done anything intentionally and vowed to proactively check the DMF database regularly.
Over the next few years, many life insurers, representing 80% of the market followed Prudential and MetLife in settlements with the lead state regulators.
“As a result of the state insurance regulator settlements, in addition to paying benefits to beneficiaries, insurers have paid approximately $180 million to states that participated,” the Californiadepartment said in its report. It has listed the many life insurance companies with which it had negotiated settlements. The report noted that the lead states had wrapped up, by then, exams and settled with 25 insurers. Lead state regulators have five remaining exams on life insurers still open, a spokesperson from the California department said Sept. 17.
California’s report identified two “small life insurers” who it accused of fighting regulators’ attempts to settle and instead, turning to litigation. The plaintiff insurers in these cases have said they felt there was no justification for an audit because there was no reason to believe they weren’t in compliance with state unclaimed property laws to begin with.
Thrivent Financial, one of these two life insurers referenced, prevailed in its lawsuit against the state of California in 2018 after arguing “that two California unclaimed property regulations were invalid,” according to JMS Advisors. This decision had repercussions for other states’ guidance.
WASHINGTON INSURANCE RIDER 