Business as usual is not theusual any more, and insurers might do well to prepare for a periodof heightened enforcement and concomitant reputational risk.

Before they are forced to, insurers may wish to consider a moreproactive approach to compliance that could have the secondarybenefit of enhancing the industry's reputation for customer care.Because following the letter of the law may not be enough toprevent conviction in the court of public opinion.

The insurance industry may see itself—and rightly so—as largelyblameless for the financial crisis, but it may not be wise toexpect the public, burdened by slow economic growth and stubbornlyhigh underemployment and unemployment, to make the finedistinctions that are more evident from the corner office. Evenwithout actual wrongdoing, press conferences and big settlementannouncements can dominate the news and damage reputations thattook decades to build.

For example, one industry issue gaining exposure nationwide hasto do with unclaimed death benefits and the use of the SocialSecurity Death Master File (DMF). Led by Florida and California,regulators have been examining insurers' use of the DMF allegedlyto halt annuity payments when it seems to be in their interests,but not to actively search out unfiled death claims and make thosebenefit payouts—or escheat unpaid benefits to the state asunclaimed property.

Whether or not this is a normal business practice that conformsto the terms of most life-insurance policies is not for us to say.But even the highest amount at issue mentioned by regulators issomewhere around $1 billion. Anywhere outside Washington, D.C., abillion dollars is still real money—but the fact is, it is arounding error when compared with the life industry's payouts overthe years. It's hard to see how that could be enough to cause theindustry to risk its reputation.

That's not how a newspaper headline would read, however—and theinsurance industry may be smart to focus on the emerging risk thatregulatory or enforcement activities centered on “business asusual” items may represent.

In New York, for example, regulators under former InsuranceSuperintendent James Wrynn and current Department of FinancialServices Superintendent Benjamin Lawsky have sought detailedinformation from insurers on their use of the DMF and have directedthem to use it expansively to help to ensure no beneficiary is leftunpaid.

But despite these actions by the highly regarded New Yorkregulators, New York's attorney general and now its statecomptroller have entered the fray, issuing subpoenas and startingwhat the attorney general called “the largest and mostcomprehensive investigation of life-insurance practices in thecountry.”

Their joint release pointedly noted that the attorney general'sTaxpayer Protection Bureau “is charged with investigating fraudagainst the state and local governments. This includes monies owedto the state's unclaimed-property fund which might have beenimproperly withheld.” The release also said, “The collaborationstems from data uncovered by both offices that indicated some fundsmay have been improperly withheld.” 

Assertions aren't facts, but they can influence public opinion.And while this is one specific item, expecting similar strongregulation and enforcement actions not to continue elsewhere may behoping for too much. The industry needs to prepare—and to act.

In this new regulatory world, the preferred course for insurersmay be to engage regulators even more actively than they havebefore.

Proactive engagement, self-reporting, acknowledgingeventualities and dealing with them head-on provide a way toharmonize regulatory and industry goals, minimizing harm to bothcompanies and consumers. The challenge of this new environment isobvious, but for those companies that seize it, there is theopportunity to assume reputational leadership as consumer-friendly,caring organizations willing to go beyond the letter of the law toserve the customers they value.

Insurance companies have normally been better at paying claimsthan telling their stories. It's time to do both—and to embracetransparency and effective regulation as the allies they shouldbe.