State Politics

State treasurer strengthens her hand in auditing insurers

North Carolina State Treasurer Janet Cowell attends a Council of State meeting on May 5, 2015, at the Administration Building in Raleigh.
North Carolina State Treasurer Janet Cowell attends a Council of State meeting on May 5, 2015, at the Administration Building in Raleigh. rwillett@newsobserver.com

In August, state lawmakers passed insurance legislation that had the blessing of life insurance companies and State Treasurer Janet Cowell, who was concerned they weren’t paying out small death benefit policies in a timely fashion.

The bill drew no opposition in the House and Senate, and Gov. Pat McCrory signed it into law a short time later. But in the closing weeks of the session, the State Treasurer’s office succeeded in adding a provision to a wide-ranging local government regulatory bill that further strengthens the treasurer’s reach in identifying money that insurance companies should turn over to beneficiaries.

If the beneficiaries can’t be found, the money then goes into the escheats or unclaimed property fund, which is managed by the state treasurer.

The provision states that the treasurer can use “any and all reliable external data, including electronic databases deemed relevant by the Treasurer” in auditing insurance companies to make sure they comply with laws requiring them to escheat the proceeds of policies when a beneficiary can’t be found.

“It ensures and clarifies the treasurer’s ability to use the death master file,” said Schorr Johnson, a spokesman for the state treasurer. The death master file is maintained by the federal Social Security Administration.

Insurance company representatives may have been caught unaware of the provision. Kimberly Moore, N.C. Mutual Life Insurance Company’s vice president of marketing, said she didn’t learn of it until the past few days.

“I’m concerned because we didn’t know,” Moore said.

Both pieces of legislation are in response to a national battle between state treasurers and life insurance companies that sold policies that paid beneficiaries upon the deaths of the insured. While the majority of these policies are paid out, there were billions of dollars that remained with insurers because the beneficiaries did not know their loved ones had taken out life insurance.

In most states, insurers were allowed to hold onto that money until the policy holder reached an advanced age, at or near 100 years old, if they had not been informed that the policy holder had died.

In recent years, roughly 20 life insurance companies have agreed to pay $4.4 billion in unclaimed policies to beneficiaries or to states’ unclaimed property funds. These companies had been using death databases to identify dead policy holders who should no longer be receiving annuity payments, but the companies weren’t using them to identify dead policyholders in order to pay beneficiaries.

Companies that had not been using the death databases for any reason began lobbying states to pass laws excluding them from having to go through their files to identify dead policy holders. Some states went against the insurers, but North Carolina’s less-stringent law requires them only to begin checking on new policy holders.

Chicago-based Kemper and Durham-based N.C. Mutual told North Carolina lawmakers that having to go through decades of old files would be cost-prohibitive; many of their older death benefit policies paid out no more than a few thousand dollars.

The new law also asserted the treasurer’s right to audit insurance companies. The provision in the technical corrections law strengthens that right by certifying that the treasurer can use the death master file, which is an electronic database.

Moore said she doesn’t contest the treasurer’s authority to make sure companies are properly turning over the proceeds of life insurance policies. But she is concerned about how much work the audits could create for N.C. Mutual, since many of the older policies are on index cards in the basement.

“In our case, those cards that go back to the 1920s still require a person to go down and secure the data,” Moore said. “There is no electronic file I can send to go up against an electronic file.”

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