In a traditional life insurance and reinsurance relationship, a life insurance company issues a policy to a policyholder and reinsures the policy (usually via a block of business consisting of the same or similar policies) with its reinsurer either by coinsurance or on a yearly renewable term basis (or otherwise). When the insured person dies, a death certificate is presented to the policy issuing company and the policy benefits are paid to the beneficiary. That triggers an indemnity claim under the reinsurance contract and the reinsurer is obligated to pay its share of the policy benefits to the ceding company. Simple.
But what happens if the insured person dies, but no one files a death certificate and makes a claim against the policy? Who gets the policy benefits? Does the insurer get to avoid paying any benefits out on the policy or does the state have an interest in this abandoned property? This has been a huge issue over the past several years, with regulators entering into settlements with life insurance companies about searching the Social Security Administration’s Death Master File or using some other method to determine death. Of course, all these abandoned life insurance benefits escheat to the state when no one claims the benefits, which is why state regulators were so keen to press this issue.
In a recent case, a New York federal court had to address these issues in a petition to confirm a reinsurance arbitration award.