Shortly before this issue went to press, a story broke in the mainstream media regarding retained asset accounts and the payment of death benefits to military veterans. In short, lots of soldiers in Iraq and Afghanistan are buying life insurance on themselves, and when they die, their families do not receive a death benefits payment, they receive a voucher book that looks like a checkbook. The family can cash out whenever it likes, and until it does, the money sits in an interest-bearing account. But, the story points out, the life insurers (mainly Prudential, but a few others as well) are earning even more while the money goes uncollected.
The story quotes distraught families of slain veterans, who are shocked– shocked, I say! — that insurers would dare to profit off the death of our soldiers. The “check books” are portrayed as nothing more than an effort to exploit families’ grief to delay death benefit payments, all while putting that money at risk by storing it in corporate accounts that are not insured by the FDIC. Conclusion? This is a huge betrayal of our brave soldiers by a greedy industry that needs to answer for it.
Now, forget for a moment that retained asset accounts are nothing new. Forget that there’s a certain hypocrisy among families who are angry at insurers for collecting interest for themselves. Forget that claims reserves have never been FDIC-insured. Forget that the same families who profess to be too distraught to cash a payment voucher would also be too distraught to run a mailed check to their local bank branch. Forget all of these things, if you can. They are just the details of a sensational story. There is a much bigger issue here.
Within 48 hours of the story’s publication, New York State Attorney General Andrew Cuomo subpoenaed half a dozen life insurers over their payment practices, and Illinois Representative Debbie Halvorson introduced legislation to set new rules for how insurers can manage unclaimed death benefit money. At this point, the whole thing is like a political grease fire. The insurers involved are keeping a low profile, but it would be nice to see them go on the offensive and educate the public a little. Maybe next time.
The retained asset accounts issue shows that life insurance is an inherently flawed transaction that either leaves the customer with an unused product (and less peace of mind than the industry would like to think) or with something that cannot possibly replace what has been lost. It is a no-win proposition, and politicians know it, which is why they lined up to go to war on retained asset accounts. They understand better than anyone how easy it is to score approval ratings at the industry’s expense, despite all the good it does. Is it fair? No. Is it deserved? Not really. But it’s a reality.
On the last page of this issue, we note that insurers seem to have a decent public reputation, but you could have fooled me. I once heard life insurance described as a product with a 100% claims history, and with a total loss on each claim. In an age of hairtrigger politics and shoot-from-the hip journalism, the industry itself is starting to look the same way. Insurers can’t really afford to keep being an easy bad guy for lazy journalists and opportunistic politicians. But knowing it and doing something about it are two different things.