Life Insurance Companies Need Transparency for Beneficiaries' Sake
When signing up for a life insurance policy, it is expected to have the beneficiary receive the funds after the death.
After several investigations, many of the top insurance companies are failing to do so, and have been for decades. While 25 of these companies are set to pay more than $7.5 billion, according to a segment in 60 Minutes called, “Not Paid”, 35 companies are still under investigation and are fighting these accusations.
Unclaimed benefits is a very common problem. It was discovered these insurance companies never paid the recipients of the accounts. Instead, they insisted it was because no one came forward to claim the money. Some insurance companies were informed on the policyholder’s death, and instead of finding the receiver, they searched for those with annuity so they could drain their policies until it reached zero.
Although the insurance companies are at fault for not attempting to find these people, it is also the responsibility of the policyholder to inform the beneficiary of the claim. If the spouse, child, or friend is unaware of their policy, they cannot contact the insurance for the claim. To make this process simpler and more transparent for both parties, insurance companies should turn to the blockchain.
Using the public ledger would easily record all policies. Both parties would have a visible log of the account. This is more useful for the beneficiary since most policies are kept hidden in a closet or file cabinet. However, the problem comes with the death of the policyholder. Right now, a majority of insurance companies have stated they use the “Social Security Death Master File” to verify a death. During the investigations, it was discovered the companies also have the death certificates of the policyholder.
This brings us to the current issue - the failure to track beneficiaries. In order to solve this problem, insurance companies could create smart contracts with their policyholders. The contract would consist of the payment terms while the policyholder is still alive, but the smart contracts would focus on the activity after their death.
Once their death is verified, the smart contract would unlock for the beneficiary. If the beneficiary does not know of the policy, the smart contract would track whether or not the insurance company reached out to this person. The smart contract would also keep a record of any transactions made or removed from the policies.
The blockchain would not only improve the failure of paying beneficiaries, it would allow the industry to operate more efficiently without any error. The American Council of Life Insurers (ACLI), an industry trade group, stated in 2011 that companies pay out more than $162 million a day. If this is the case, the blockchain would only increase their performance.