The New York State Insurance Department has issued a [press release] indicating that they have sent letters requesting information from the 172 licensed life insurers and fraternals. The letter requires these insurers to use the United States Social Security Administration’s Death Master File (who names these?) to identify policy holders who have died where no claim has been filed. The Department is also amending regulations to “require life insurers to perform regular SSA Master File cross-checks and to require life insurers to request more detailed beneficiary information (e.g. social security number, address) to facilitate locating and making payments to beneficiaries in the future.”
As is so often the case when a single part of a process is looked at with great scrutiny, the proposed solution may create new problems when the larger process is seen as a whole. There are clearly consumer protection issues when policy values are depleted after a policy holder dies. However, there will just as surely be new problems that arise with new mandates and procedures: protecting the social security numbers of beneficiaries is an obvious one.
Because I spend so much time on policy forms, I immediately wonder how this might need to be addressed in policy forms and what issues may arise there. The suggested shift in the burden of paying claims would seem to require new policy provisions. Time limits for claims so that beneficiaries further down the line can get their checks and the company stop receiving premium payments? Beneficiary designations becoming part of the policy because rights are retained or lost there? It seems certain that there will be disputes and litigation that will arise from forcing payouts to people who are easily found over people who are not.
Recently the life insurance industry has taken some tough criticism and then life insurance regulators get criticized secondarily for having failed to address the issues in advance of the negative publicity and react with new mandates. However, on this issue and on retained asset accounts, the criticism seems to be based on the idea that if insurers benefit financially, by definition, consumers are hurt and something has to change. I question the validity of that premise.
I would like to see life insurers be more successful in getting out an opposing view to the criticism. I would also like to see regulators more publicly confident in their existing regulations. That isn’t to say regulation can’t improve or that there aren’t new issues that need to be addressed. However, there are real, good and valid reasons why beneficiary provisions work the way they do. In some cases negative outcomes may happen. But that will always be true. It isn’t possible to regulate away all negative outcomes in specific situations. Holding on to death proceeds until the primary beneficiary comes forward - even if the life insurer benefits financially by continuing to receive premium payments from automatic deductions - may result in the wishes of the insured and the rights of the beneficiary being better protected.
I am hopeful that the information gathered by the NYSID will illustrate this and will allow the life insurance industry to put out a positive message. I also hope that regulators see that the laws and regulations already on the books and already vigorously enforced are strong and sufficient to protect the interests of consumers as a whole, even if there are specific situations, when looked at in isolation, where alternative outcomes would have been better for a particular individual. After all, regulations are about protecting large groups of people as a whole, not ensuring that for each individual the best possible outcome is achieved.