Unclaimed property audits have been on the rise in recent years.The Counsel on State Taxation's October, 2013 report, The Bestand Worst of State Unclaimed Property Laws revealed that forFiscal Year 2013, there were over $40 billion in unclaimed propertyheld by states—nearly double the $22.8 billion states held just adecade ago. The reality is unclaimed property is a relatively easysource of funds for revenue-hungry states.

But managing unclaimed property audits is not easy for insurers.For starters, they require extensive time and resources. There areessentially 6 stated requirements for an insurer to meet theirobligations under the Settlement Agreements, model laws and/orregulations:

• Obtain access to the Social Security Administration's DeathMaster File (“DMF”)
• Gather insurer's data, potentially from multiple sources,and bump up against the DMF
• Use fuzzy logic to accommodate variations in data that wouldotherwise preclude a match
• Reconcile matches
• Locate and pay beneficiaries, or escheat monies to thestates
• Generate reports to the states

Generating periodic reports to states is a simple task intheory. In practice, however, companies continue to struggle tomeet the requirements. Many, in fact, question whether their levelof compliance will meet the expectations of the auditors/statedepartments of insurance.

Compliance is critical. Companies need to be able to stand up atthe end of the day with a solid belief that they have doneeverything possible to have evaluated their risks, implementedsolutions and have controls in place to ensure the solution(s)is/are working as intended.

Beyond the stated requirements, there are other challenges to beaddressed by companies:

• The ability to take data from multiple, even numerous, adminsystems in order to bump the data against the DMF
• The decision to search lists in addition to the Death MasterFile
• Logic to prevent “redecisioning” previously “decisioned”matches without a material change in the data
• A case management system that enables the storage of potential match data and decisions, enables work flow;seamlessly creates assignments and reassignments (includingescalations); tracks progress to resolution; and enablesreporting
• Timeliness of turnaround on decisions
• Back end services surrounding fuzzy logic resolution
• Back end services surrounding locating beneficiaries

Let's take a look at the areas where companies continue tostruggle even though they may have solutions in place.

Fuzzy Logic

Companies have found ways to address the fuzzy logicrequirements. Most have outsourced the process versus building therequirements in house. Either way, rules need to be builtinto the matching criteria so that results are ranked in anautomated fashion by “confidence levels” (that is, how likely the“hit” a true “hit”).

No guidance has been given as to what confidence level a companyhas to review to in order to be found to be compliant.

Which List/Lists

Although there is nothing currently mandating companies tosearch beyond the DMF, some are opting to do so. It is wellknown that the DMF is not complete and is not 100% accurate. Thishas led some companies to look at other available sources ofinformation such as railroad employee and teacher's pension records(as they did not/do not pay in to social security), as well asother resources such as Registry of Motor Vehicle records, vitalstatistic records and obituaries.

Again, guidance has not been given here.

Data Repository

Anybody who has been working with the DMF file requirementsknows there are (is or are – seems to be under debate re data) lotsand lots of data to be managed.

Data have (has or have) to be taken from various administrationsystems and the volumes of data that are returned from the matchingprocess must be managed as well. Insurance carriers are findingthat the storage of returned data is particularly onerous. Manycompanies are managing this information via numerous spreadsheetsand need to conduct essentially manual, repetitive cross checksagainst the numerous spreadsheets to eliminate duplicates (eventriplicates) and to be sure they are not needlessly working on“hits” that have already been worked, and decisions already made onthem.

The lack of a central repository also makes it possible thatdifferent internal teams holding policies (life and annuity) maynot be working in a coordinated/efficient fashion.

Again, data management is not mandated by any of therequirements set forth today, but companies are struggling with thebest way to manage all of this information.

Audit Requirements

Companies licensed in multiple states may well be faced withmultiple audit requests. The process is very timeconsuming. If handled incorrectly, the audit process isexpensive and could become a public relations nightmare.

There are two types of Audits:

General Audit Information Request (Level 1) – The company mustrespond to a request from the audit company showing that they havesearched against the DMF for all individuals having a policy issued/or currently located in a particular state or states.

Individual Audit Information Request (Level 2) – The auditcompany has found a match and wants to see the action taken by thecompany. This type of request has a time limit. If acompany is using EXCEL spreadsheets, the process can be complex anddifficult to track.

Not having a consolidated solution and easily accessible “audit”trail exacerbates the challenges presented.

Operational Considerations

This is not a one-time process. While companies need to addressimmediate needs presented by audits, it is clear that this isdeemed to be an ongoing obligation. Operations needs to be preparedto address these ongoing demands.

Staffing

Many companies have had to hire temporary employees to undertakethis work. Often large numbers of temporary staff is needed.Training is required, and expensive. Turnover of employees adds tothis expense; it is difficult to ensure consistency with a changingwork force.

Reporting

Reporting can be challenging and time consuming. Companies needrobust and configurable reporting which enables the ability to viewinformation on their current state, as well as giving the companyand the auditors/regulators the ability to recreate what was donein the past.

There is no one-size-fits-all answer to these challenges andquestions. Companies must continue to monitor future settlementagreements and the actions of the states. As this process isongoing, the burden is not only on the insurers. The regulators arecontinuing to learn and refine their expectations aswell.

It is important to be nimble and have flexible and scalablesolutions in place to make timely adjustments in response to theseanticipated, but as-yet-unknown changes. Processes andinfrastructure need to be put in place and monitored and tweaked asnecessary. Only then will insurance carriers be able to feelconfident that their solution is indeed “enough.”

Nina Capeles is Insurance Solutions Manager withWolters Kluwer Financial Services.