Embracing Transparency in Government Investigations
Could Be a Reputational Boon to Carriers

BY HOWARD MILLS

BUSINESS AS USUAL is not the usual any more, and insurers might do well to prepare for a period of heightened enforcement and concomitant reputational risk.

Before they are forced to, insurers may wish to consider a more proactive approach to compliance that could have the secondary benefit of enhancing the industry’s reputation for customer care. Because following the letter of the law may not be enough to prevent conviction in the court of public opinion.

The insurance industry may see itself—and rightly so—as largely blameless for the financial crisis, but it may not be wise to expect the public, burdened by slow economic growth and stubbornly high underemployment and unemployment, to make the fine distinctions that are more evident from the corner office. Even without actual wrongdoing, press conferences and big settlement announcements can dominate the news and damage reputations that took decades to build.

For example, one industry issue gaining exposure nationwide has to do with unclaimed death benefits and the use of the Social Security Death Master File (DMF). Led by Florida and California, regulators have been examining insurers’ use of the DMF allegedly to halt annuity payments when it seems to be in their interests, but not to actively search out unfiled death claims and make those benefit payouts— or escheat unpaid benefits to the state as unclaimed property.

Whether or not this is a normal business practice that conforms to the terms of most life-insurance policies is not for us to say. But even the highest amount at issue mentioned by regulators is somewhere around $1 billion. Anywhere outside Washington, D.C., a billion dollars is still real money—but the fact is, it is a

rounding error when compared with the life industry’s payouts over the years. It’s hard to see how that could be enough to cause the industry to risk its reputation.

That’s not how a newspaper headline would read, however—and the insurance industry may be smart to focus on the emerging risk that regulatory or enforcement activities centered on “business as usual” items may represent.

In New York, for example, regulators under former Insurance Superintendent James Wrynn and current Department of Financial Services Superintendent Benjamin Lawsky have sought detailed information from insurers on their use of the DMF and have directed them to use it expansively to help to ensure no beneficiary is left unpaid.

But despite these actions by the
highly regarded New York regulators,
New York’s attorney general and now its
state comptroller have entered the fray,
issuing subpoenas and starting what the
attorney general called “the largest and
most comprehensive investigation of life-
insurance practices in the country.”
Their joint release pointedly noted that
the attorney general’s Taxpayer Protection
Bureau “is charged with investigating
fraud against the state and local
governments. This includes monies
owed to the state’s unclaimed-
property fund which might have
been improperly withheld.” The
release also said, “The collaboration
stems from data uncovered by both
offices that indicated some funds may
have been improperly withheld.”
Assertions aren’t facts, but they
can influence public opinion. And
while this is one specific item,
expecting similar strong regulation
and enforcement actions not to
continue elsewhere may be hoping
for too much. The industry needs to
prepare—and to act.