The business community is raising concerns over a bill introduced in the Illinois House of Representatives that critics claim will make substantial and troubling changes to legislation covering unclaimed property.
HB 2603, introduced by Rep. Michael Zalewski (D-Summit), has been assigned to the House Executive Committee, and is likely will be discussed at its next meeting on March 8.
The Uniform Unclaimed Property Act makes major changes to the way Illinois deals with abandoned property. It adds language on rule making, abandoned property, taking custody of property, and reporting requirements.
It was introduced as the Uniform Law Commission (ULC), a national body that provides states with non-partisan draft legislation, works on final guidelines on legislation relating to unclaimed property.
Kate Kiernan of the American Council of Life Insurers said the bill is presented as adopting the ULC 2016 Revised Uniform Unclaimed Property Act (RUUPA), which her industry supports.
“However, the bill significantly deviates from the RUUPA,” Kiernan, vice president in charge of state relations, told Illinois Business Daily.
“Among other concerns, the current language in the bill is unclear and could result in companies escheating (transferring) funds to the state when a policyholder has not, in fact, died. This would cause confusion and hardship to consumers,” Kiernan said in an email message.
“The life insurance industry is proud of its long history of honoring its obligations to policyholders,” she added. “In the past 10 years, insurers have paid more than $600 billion to beneficiaries of life insurance policies nationwide. In Illinois, life insurers paid $4 billion to beneficiaries in 2015 alone.”
Kiernan said state insurance departments strictly regulate the life insurance claims payment process, and that they also “have well-established laws delineating when unclaimed life insurance benefits default to the government.”
“In a small percentage of cases, life insurance benefits go unclaimed because family members are unaware that they are listed as beneficiaries of existing policies," she said. “Life insurers want everyone to receive the benefits to which they are entitled rather than paying unpaid benefits to state governments.”
She said all life insurers are complying with the law and most companies are going well beyond what current laws require to identify policyholders who have died, locate beneficiaries of unclaimed life insurance and help them initiate the claims process.
“The industry supports legislation that requires companies to regularly compare their records against the Social Security Administration’s Death Master File to quickly connect people to the benefits they are entitled to receive,” Kiernan said.
“Life insurers also support moves by Illinois and the National Association of Insurance Commissioners’ (NAIC) to implement Lost Policy Locator Services. These services can help consumers locate deceased family members’ life insurance policies or annuity contracts.”
The U.S. Chamber Institute for Legal Reform (ILR), also opposes HB 2603. It has written a letter to Gov. Bruce Rauner urging him to veto the legislation if it makes it to his desk.
“This legislation would override established insurance law and require a company to return allegedly unclaimed insurance proceeds to the state, without regard to whether the insurer would have any obligation to pay the beneficiary under the terms of the insurance contract,” the institute’s Executive Vice President Harold Kim wrote in the letter.
Kim argued that the legislation “violates the Contracts Clauses in both the U.S. and Illinois Constitutions.” The legislation will also apply fines and penalties on insurance companies who may not know of a covered person’s death, he said.
“As a result, private audit firms hired under contingency fee arrangements will likely abuse this standard,” Kim predicted. “The profit-centric nature of these arrangements have resulted in a nation-wide explosion of irrational unclaimed property audits, leaving businesses subject to costly enforcement actions for reasons outside of their control—such as the inaccuracy or omission of information in the nationwide Death Master Index File.”