Prudential Financial Inc. says it believes the checking account payment option it has offered military life insurance beneficiaries has been good for beneficiaries.
“It is important that the beneficiaries of our fallen service men and women are treated with dignity and respect during a very difficult time,” Prudential Chairman John Strangfeld says in a statement. “Given the questions raised over the life insurance program we administer for the Department of Veterans Affairs, we welcome an opportunity to address the concerns and to set the record straight.”
Bloomberg Markets recently created a flood of about 2,000 news articles, or reprinted versions of articles, by publishing an article about retained asset accounts (RAA) – vehicles life insurers use to hold beneficiaries’ benefits until the beneficiaries withdraw cash with checks or payment cards.
Supporters say life insurers that offer retained asset accounts usually let beneficiaries choose between using the accounts and getting lump-sum payments, and they say retained asset accounts can give grieving beneficiaries time to mourn before making major financial decisions.
The critics cited in the Bloomberg Markets article say life insurers earn high returns on the cash and pay beneficiaries low interest rates, even though the accounts are not insured by the Federal Deposit Insurance Corp. (FDIC). In some cases, the critics say, the insurers may not have given the beneficiaries any clear indication that the funds would be held in something other than an FDIC-insured bank.
The Bloomberg Markets article focused on retained asset account programs at Prudential Financial Inc., Newark, N.J. (NYSE:PRU), which runs the Servicemembers’ Group Life Insurance (SGLI) program, and MetLife Inc, New York (NYSE:MET), which runs the group life program for federal civilian employees.
New York Attorney General Andrew Cuomo said Thursday that he has sent subpoenas about the accounts to Prudential and MetLife.
Cuomo’s office now has expanded the investigation to include Genworth Financial Inc., Richmond, Va. (NYSE:GNW); Unum Group Corp., Chattanooga, Tenn. (NYSE:UNM); New York Life Insurance Company, New York; Northwestern Mutual Life Insurance Company, Milwaukee; Guardian Life Insurance Company of America, New York; and an insurance unit of AXA S.A., Paris, according to someone familiar with the investigation.
Although Prudential serves as the administrator for the SGLI program and a related Veterans’ Group Life Insurance program, 25 other insurers help support the program by acting as reinsurers, according to the SGLI program 2009 annual report. The SGLI and VGLI programs took in a total $1 billion in premium revenue in 2009 and paid $1.1 billion in claims.
Prudential says the critics of the SGLI retained asset accounts are missing some important points.