U.S. life insurers are facing higher costs as they change their claim-payment practices in response to recent regulatory reform initiatives and legal challenges, says Fitch Ratings in a new report.
In a new report, Fitch observes that several large U.S. life insurers have been criticized for being lax at identifying and transferring unpaid life insurance policies. As a result, several state regulators, including New York and Illinois, have issued letters instructing life insurers to use available federal data to make appropriate death benefit payments to beneficiaries, and to pay the state if the policies are deemed abandoned property. The industry has also seen an increase in litigation stemming from claim-payment practices, it notes.
Fitch says that while many companies in the industry claim they already go beyond contractual obligations when examining policies and seeking to identify potential death benefits that should be paid, “We feel this is an area where regulators are seeking tighter guidelines and requirements.”
In the near term, Fitch says it expects that these changes “will result in an increase in claim payments and additional expenses as insurers adapt to new, still-evolving regulatory requirements and respond to legal challenges.” However, it also says that it believes that the charges associated with new reforms will be manageable, and that insurers’ credit ratings will not be affected.