Unclaimed property audits have been on the rise in recent years. The Counsel on State Taxation's October, 2013 report, The Best and Worst of State Unclaimed Property Laws revealed that for Fiscal Year 2013, there were over $40 billion in unclaimed property held by states—nearly double the $22.8 billion states held just a decade ago. The reality is unclaimed property is a relatively easy source 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 are essentially 6 stated requirements for an insurer to meet their obligations under the Settlement Agreements, model laws and/or regulations:

• Obtain access to the Social Security Administration's Death Master 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 would otherwise preclude a match
• Reconcile matches
• Locate and pay beneficiaries, or escheat monies to the states
• Generate reports to the states

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

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

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

• The ability to take data from multiple, even numerous, admin systems in order to bump the data against the DMF
• The decision to search lists in addition to the Death Master File
• 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 (including escalations); tracks progress to resolution; and enables reporting
• 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 to struggle even though they may have solutions in place.

Fuzzy Logic

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

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

Which List/Lists

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

Again, guidance has not been given here. 

Data Repository

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

Data have (has or have) to be taken from various administration systems and the volumes of data that are returned from the matching process must be managed as well. Insurance carriers are finding that the storage of returned data is particularly onerous. Many companies are managing this information via numerous spreadsheets and need to conduct essentially manual, repetitive cross checks against the numerous spreadsheets to eliminate duplicates (even triplicates) and to be sure they are not needlessly working on “hits” that have already been worked, and decisions already made on them.

The lack of a central repository also makes it possible that different internal teams holding policies (life and annuity) may not be working in a coordinated/efficient fashion.

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

Audit Requirements

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

There are two types of Audits: 

General Audit Information Request (Level 1) – The company must respond to a request from the audit company showing that they have searched 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 audit company has found a match and wants to see the action taken by the company.  This type of request has a time limit.  If a company is using EXCEL spreadsheets, the process can be complex and difficult 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 address immediate needs presented by audits, it is clear that this is deemed to be an ongoing obligation. Operations needs to be prepared to address these ongoing demands.

Staffing

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

Reporting

Reporting can be challenging and time consuming. Companies need robust and configurable reporting which enables the ability to view information on their current state, as well as giving the company and the auditors/regulators the ability to recreate what was done in the past. 

There is no one-size-fits-all answer to these challenges and questions. Companies must continue to monitor future settlement agreements and the actions of the states.  As this process is ongoing, the burden is not only on the insurers. The regulators are continuing to learn and refine their expectations as well. 

It is important to be nimble and have flexible and scalable solutions in place to make timely adjustments in response to these anticipated, but as-yet-unknown changes. Processes and infrastructure need to be put in place and monitored and tweaked as necessary. Only then will insurance carriers be able to feel confident that their solution is indeed “enough.”

Nina Capeles is Insurance Solutions Manager with Wolters Kluwer Financial Services.