Unclaimed Property and the Insurance Industry

Cornel Lupu
February 1, 2021

Insurance companies, like all “holders,” are required to comply with the unclaimed property laws for each state or jurisdiction within the United States and its territories. Although there are some similarities, many states have different reporting requirements and dormancy periods. As of late, there have been many legislative changes affecting the unclaimed property laws. Therefore, keeping abreast of these changes and complying with these laws can be extremely challenging. In order to ensure compliance, there should be a robust set of policies and procedures that must be followed in order to research, identify, record and report unclaimed property to the appropriate state. In addition, effective internal controls must be in place for each area of the company responsible for any part of compliance with unclaimed property laws. It is essential that these controls be designed and implemented specifically for the effective adherence to the policies and procedures.

Every insurance company, at a minimum, should be asking themselves the following questions:

  1. Has our company ever failed to file unclaimed property reports to the appropriate jurisdiction?
  2. Has our company ever filed inaccurately or failed to include all applicable property types?
  3. Has our company ever filed unclaimed property reports that were late?
  4. Has our company ever applied an inappropriate dormancy period to property that is due to be or has been escheated?   
  5. Do our policy administrative systems’ records need to be updated with the most current policyholder and beneficiary data?
  6. Have we over-reported or incorrectly reported to the wrong jurisdiction? 
  7. Are we potentially holding past due unclaimed property (suspense accounts)?
  8. Do we have any subsidiaries within the corporate structure that have never filed an unclaimed property report?  

If the answer to one or more of these questions is “yes”, then it is likely that your company may be at high risk for an audit; and it is imperative to reevaluate your internal controls, policies and procedures for compliance with the unclaimed property laws. There are a number of best practices that an insurance company should follow that would decrease their risk of an unclaimed property audit and would also position the company to attain a strong and effective governance structure. Here are some suggested best practices that will help attain these results:

  • Establish an unclaimed property committee that is responsible for compliance.
  • Centralize the governance over the unclaimed property policies and procedures.
  • Incorporate the use of the Social Security Death Master File to determine if a policy holder is deceased.
  • Conduct internal audits of unclaimed property policies and procedures.
  • Ensure all Third Party Administrator agreements clearly define who is responsible for identifying and reporting unclaimed property to the states.
  • Establish and reconcile an unclaimed property liability account on the general ledger.
  • Account for unclaimed property liabilities in accordance with Statement of Financial Accounting Standards (FASB) No. 5 – Accounting for Contingencies.
  • Conduct system reviews to ensure that all relevant owner data and dates are captured and updated effectively and timely.
  • Engage an independent specialist to confirm current procedures and offer suggestions for improvement and enhancements.
  • Consider filing a Voluntary Disclosure Agreement (VDA) with states which may either eliminate or significantly decrease penalties and interest for past due property. 

Unclaimed property laws are forever changing and can be very difficult to follow and interpret.  With state enforcement on the rise, there is no better time than the present to proactively review and address your current compliance process. If these best practices are followed, your risk for non-compliance with the unclaimed property laws can be reduced significantly.

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Author

Cornel Lupu

Cornel Lupu is a Senior Consulting Manager at Sovos. He has served as an advocate for holders undergoing unclaimed property audits and advises his clients on unclaimed property best practices to mitigate risk and ensure compliance. With over 20 years of diverse and extensive experience in the insurance industry, he possesses the knowledge of the functionality of insurance-related general ledger accounts, and he has also been involved in managing numerous general ledger conversions.
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