SPRINGFIELD — A task force investigating life insurance companies’ practice of withholding unclaimed death benefits will convene statewide hearings this week.
Democratic Illinois Treasurer Mike Frerichs created the panel after audits, which were conducted on behalf of his office since 2011, identified more than $550 million in unpaid benefits. This week’s hearing, the first of at least four planned across the state, will be 10 a.m. Wednesday in the council chambers in Normal (Illinois) Town Hall, 11 Uptown Circle.
Meanwhile, a bill awaiting Republican Gov. Bruce Rauner’s signature would require insurers to check Social Security records to identify deceased policyholders whose benefits remain unclaimed by survivors. The bill passed unanimously in the closing days of the General Assembly’s regular spring session.
While the Illinois Department of Insurance oversees the industry, Frerichs has taken an interest in the issue in his role as the state’s steward of unclaimed property that includes insurance benefits and bank accounts.
“I’ve never met a man or a woman who purchased life insurance with the expectation that the death benefits would be kept by the insurance company rather than paid to their family,” Frerichs said in a prepared statement that announced the hearing. “Families need to know how to protect themselves from insurance companies who manipulate the rules to avoid paying death benefits.”
Greg Rivara, a spokesman for the treasurer’s office, said insurance companies wait until an actuarially determined age, typically around 100, to begin paying out benefits if they haven’t been notified of a policyholder’s death.
As a result, a surviving spouse or children may wait decades to receive money to which they’re entitled, Rivara said. He added that family members sometimes are unaware that they are named as beneficiaries of life-insurance policies.
Last year, three subsidiaries of Chicago-based insurance company Kemper Corp. sued the treasurer’s office in Sangamon County Circuit Court to stop the audits used to identify unpaid benefits.
In court filings in the ongoing lawsuit, the companies argue that their policy agreements don’t require them to begin paying benefits until they receive official notification of a policyholder’s death.
Mike Schrimpf, whose public affairs firm Red Tack Strategy works for Kemper, said there are other issues with the treasurer’s audits and the proposed law as well.
Schrimpf, Rauner’s former deputy chief of staff, wrote in an email that the audits for Frerichs’ office have created a windfall for Connecticut-based audit firm Verus Financial, which has received more than $21.5 million in fees since 2011.
Verus takes a cut of the unclaimed money it tracks down from insurance companies, and the state then has to make up the difference with money that would otherwise go into its severely underfunded pension systems, Schrimpf said.
“Obviously, a better way to do this is to have the state do all the work itself or at least not pay out massive contingency fees,” he said.
Rivara said the money is tied to the pension funds because that’s the way state law establishes the treasurer’s unclaimed property program.
“When Verus finds it, Verus does get paid for their work, and they should be paid for their work,” he said, noting that government agencies across the state hire outside auditors all the time.
The real issue, Rivara said, is that forcing insurance companies to pay out benefits they’d otherwise hold on to hurts their bottom lines – or, as Kemper put it in a recent filing with the Securities and Exchange Commission, “could have a material adverse effect on the Company’s profitability, financial position and cash flows.”
The Frerichs task force includes members of the General Assembly, Citizen Action/Illinois, AARP and the National Association for the Advancement of Colored People (NAACP) representatives of Kemper were invited to participate but haven’t said whether they will, Rivara said.