As reported in LifeHealthPRO on Feburary 1st 2013 (http://www.lifehealthpro.com/2013/02/01/hancock-hit-with-unclaimed-property-lawsuit) , John Hancock has been named in a class action lawsuit concerning their practices relating to life insurance death benefit payments. The suit seeks damages for individuals who did not find out in a timely manner that their relatives had purchased life insurance policies that named them as beneficiary. This suit is separate from the string of state audits and resulting settlements that have been rocking the industry in recent years.
For those insurers that have adopted a mindset that escheating is easier than locating beneficiaries, this suit should be viewed as a wake-up call. It could also have implications regarding the standards that insurers need to apply when matching their records to the Social Security Administration Death Master File (SSA DMF). Ten states, thus far, have proposed or passed legislation requiring insurers to perform death matching and many others are expected to follow suit.
While states may lack clarity as to what level of matching is sufficient, the increased threat of class action lawsuits on behalf of beneficiaries puts pressure on insurers to apply a suitably high standard in order to demonstrate that a best practice approach has been implemented to mitigate risk. In other words, it is becoming more apparent that taking the approach of trying to meet a minimum standard that will satisfy the states may NOT be enough because beneficiaries can reasonably claim that they were not required to provide (or certify) a SSN and that typographical or insurer record keeping issues should not absolve an insurance company of their alleged responsibility to manage the research, notification and claims process.
The extent to which an insurer may dispute historical obligations on these matters is open to debate. However, with the recent legislative activity, it is clear that insurance companies will be held to a higher set of standards going forward. This includes improved data collection practices on the front-end and going beyond basic Social Security Number (SSN) matching on the back end to include fuzzy logic that accounts for typographical errors, nicknames, missing elements, erroneous dates and more.
In the end, a greater number of decedents will be identified allowing claims to be paid more quickly and accurately. Because today’s beneficiaries can be tomorrow’s customers, these process improvements can ultimately work to the advantage of all parties.