Tax & Accounting Blog

Breaking Developments: State Insurance Regulators Focus on Unclaimed Property

Alerts, Unclaimed Property April 28, 2011

Three key regulatory events have occurred in the past week.  These events drastically change the landscape with respect to future unclaimed property compliance efforts.

First, insurance regulators in Florida and California have issued subpoenas and are holding hearings to investigate industry wide practices into how life insurers handle unclaimed property. Second, California announced what it referred to as a “landmark settlement with John Hancock” which will assist the “…Controller’s efforts to reunite more than $20 million of death benefits and matured annuities with their owners.”

Finally, the announcement, when coupled with a reading of a significant, multi-state settlement agreement found on the California State Controller’s website, indicates that 21 leading insurance companies are under scrutiny by the 35 some states that are identified as potential “Signatory States” to the multi-state John Hancock settlement agreement.  These developments signal a game change for the holder community for the following reasons:  

  • Emergence of the involvement of other state regulators:  There are increased efforts of state regulators – other than unclaimed property regulators – to ensure that companies come into compliance with state unclaimed property laws.   Unclaimed property audits may no longer exist in a vacuum.
  • Application of standard and complex settlements:  The John Hancock settlement agreement apparently requires them to agree to new policies and procedures with respect to how certain aspects of their unclaimed property activities are conducted.  It is possible this will serve as a template for other insurance companies, since the same contract auditor is apparently conducting the audit for all the 35 some states delineated in the Schedule A to the John Hancock settlement agreement.  As outstanding multi-state audits are completed, companies may face standardized settlement agreements similar to that announced in the John Hancock matter.  
  • Increase in settlement amounts:  There is a significant increase in the actual settlement amounts being reported in recent years.   For example, the Computer Associates Delaware settlement, Sprint multi-state rebate settlement, and a TravelZoo settlement just announced with Delaware this past week were all in the $17 million-$22 million range, compared to single digit settlements in years past.      

In summary, the stakes for non-compliance with state unclaimed property laws have been elevated to a new level with these developments.  In large part because of state budget deficits, it is anticipated there will be a continued increase in contract audits performed on behalf of the states.  Enacting a timely and proactive strategy will be best approach that holders can take, including, but not limited to, legal, consulting, accounting and public relations advice.