Life insurance companies would be more likely to pay out on thousands of decades-old small policies under legislation approved Thursday by the state House of Representatives.
The House vote came after several weeks of behind-the-scenes negotiations between the companies and state officials on legislation that sought to clarify whether the companies had the responsibility to know when policyholders died. Many of the policies were recorded on index cards and are now housed in musty storage rooms, making it onerous for the companies to find beneficiaries and pay what was owed.
Senate Bill 665 has been characterized as consumer protection legislation because it requires all companies to begin using a Social Security death master file to identify dead policyholders for policies written after Sept. 30 of this year. The House version strengthens the State Treasurer’s ability to audit insurers to make sure companies have been paying out on old policies as the law requires.
Brad Young, a treasurer’s spokesman, said those audits include the option of gathering policyholder information from companies to match death databases.
State Treasurer Janet Cowell had fought the original bill, which was approved by the Senate in April, saying it would allow the companies to sit on unclaimed policies. In many states, including North Carolina, the money was required to go the states’ unclaimed property fund, which helps support college scholarships for financially needy students.
The legislation addresses concerns that insurance companies haven’t been diligent in determining whether policyholders have died. It has typically been the responsibility of beneficiaries to notify insurers of a policyholder’s death, but a series of national agreements between states and roughly 20 life insurers showed that $4.4 billion in policy proceeds had not gone to beneficiaries.
That’s because the beneficiaries either didn’t know about the policies or did not know how to claim them. And in those cases, the companies could hold onto the money until the policyholder had reached what is known as the “limiting” or “maturing” age, typically the far end of life expectancy, at or near 100 years old.
Some states passed legislation requiring death database checks only on new policies. But other states passed legislation that compels companies to use the death database to identify all dead policyholders and then pay the beneficiaries. The News & Observer reported on the legislation last month.
Companies that weren’t a party to the national agreements contended they shouldn’t have to check old policies because they had not been using the death databases to stop payments to annuity holders who had died, as the companies who signed the national agreements had.
The vast majority of life insurance policies are paid out. But that small percentage remaining are worth an estimated tens of millions of dollars in North Carolina, and roughly $1 billion nationally.
Lawmakers and state officials said they supported the bill after state officials and insurance companies called it a workable compromise.
“We worked a long time on this bill, and we think we’ve come to a good place,” said Tony Solari, a lobbyist for the treasurer, before the bill cleared a House judiciary committee Wednesday.
Next: the Senate
Franklin Freeman, a lobbyist for the National Alliance of Life Companies, which includes smaller life and health insurance companies, said requiring companies to go through hundreds of thousands of old policies recorded on paper would cost the companies more than what the policies were worth. Most of the policies in dispute paid death benefits of roughly a few hundred to a few thousand dollars.
The NALC began lobbying efforts three weeks ago, Freeman said.
Two companies, N.C. Mutual Life Insurance Co. of Durham and Chicago-based Kemper, had pushed for the original legislation. Their representatives also told lawmakers in the committee hearing they were satisfied with the new version. They each had roughly 100,000 or more small death benefit policies.
Brenda Williams, the deputy state treasurer in charge of unclaimed property, said the compromise legislation strengthens the treasurer’s ability to audit companies to make sure they are paying out policies properly.
To avoid having to check all old policies, companies have to attest that they have not been using death databases to shed annuity payments. They must also affirm that they have been complying with state laws for the payment of policies and tracking the limiting age of policyholders.
The legislation goes back to the Senate for approval.