Flawed Social Security death data puts life insurance benefits at risk

The Social Security Administration maintains the only federal database that insurers are required to periodically check for deaths. Issues with the database, however, have resulted in millions of families risking delayed or lost life insurance benefits.

INN spoke with Dick Weber, president and chief consultant for The Ethical Edge, and a consumer representative for the National Association of Insurance Commissioners (NAIC), who recently gave a presentation at NAIC’s fall national meeting about the issues with the database and some potential solutions.

Today, only a fraction (16%) of deaths in the U.S. are captured in the Social Security Administration’s Death Master File, or DMF. The DMF was created to facilitate terminating monthly Social Security checks for those recipients who have died. Insurance companies have used the DMF for the same reason – terminating monthly annuity checks when the annuitant has passed. But not all insurers are as thorough with the death claims on life insurance as they are on annuities, Weber says

“The dilemma is what used to be the ‘go to’ place for carriers and the SSA is now a less complete file,” Weber says.

In 2011, in response to state privacy and identify concerns, the SSA removed more than 4.2 million state death records from the publicly available DMF. The Bipartisan Budget Act of 2013 restricted access to the full DMF, resulting in the format being changed to  the Limited Access DMF used by insurers today.

Some of the information in the database now comes from scraping the internet for obituaries. Weber notes, however, that there are more than 40,000 news outlets today providing 67% of the needed death data via obituaries. But so many obituary sources are unwieldy and inconsistent as to be insufficient for tracking. In addition, it is becoming less customary for families to post (and pay for) a published obituary.

There’s another category of missing benefits – when the beneficiary doesn’t know the recently deceased family member had purchased and paid for a life insurance policy or was covered under group benefits the survivor didn’t know about.

“Often, beneficiaries are not aware that a life insurance policy even exists. An example would be if mom buys a policy but dad isn’t aware of it,” he says.

Weber also notes that with industry consolidation, “aging out” of the agent workforce, and the rise of embedded benefits, the critical link between the insurer and the insured has been lost.

NAIC life policy locator

The NAIC established its Life Insurance Policy Locator (LIPL), which has helped families receive millions of dollars in insurance benefits when there wasn’t enough information to file a claim. Weber says this has some limitations including the fact that insurers often don’t promote the existence of this consumer tool on their websites, or if they do, it’s not readily apparent.

The LIPL, however, does not own or generate a master database of all life insurance policies, nor does it attempt to find decedents via the DMF or any other source. The system works by receiving requests from consumers (with identifying information) and then participating life insurers compare those requests against their own internal policy records. If a match is found, the insurer reports it through the NAIC’s tool and contacts the beneficiary.

Weber says it’s important to note that not all insurers participate in the LIPL. Those insurers who do voluntarily (or as part of regulatory cooperation) connect to the NAIC portal and review submitted search requests to see if any of their policies match.

When an insurer finds a match, it reports it (via the NAIC portal) and or contacts the beneficiary. The NAIC itself does not maintain full policy-level data (i.e. it does not compile a full archive of all policies or beneficiaries).

“From the insurance carrier’s standpoint, it knows there’s a policy, but doesn’t know there’s been a death unless there’s been a benefit claim,” he says.

And far too often insurance carriers do not have current and accurate contact information for heirs and beneficiaries.

Weber says a formal request will be issued to the NAIC to look into these issues. He suggests that some of the potential solutions could include:

• Requiring insurers to search the states that sell vital records data
• Having standardized validation protocols with evidence that all sources have been tapped; establishing annual metrics
• Tightening the timeframe for locating beneficiaries and paying benefits to 60 days
• Requiring documentation of searching all sources to be done monthly.

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