The National Association of Insurance Commissioners (NAIC) has announced that, at its Seattle meeting on August 15, it will formally establish a new working group “to examine a life insurance claims settlement practice involving the use of retained asset accounts (RAA).” Of particular concern to the group is consumer disclosure.
Recent headlines concerning the disposition of life insurance assets to deceased veterans’ families have sparked an investigation by New York Attorney General Andrew Cuomo into the practice along with an outcry from veterans’ groups and class action lawsuits by veterans’ families. The news hitting the press in recent days reports that beneficiaries did not receive benefits in a lump sum, that benefits were not FDIC insured, and that families said they were not advised of the practices.
According to a Bloomberg Markets magazine report, cited in another Bloomberg article, “life insurance companies keep money in their own accounts, instead of paying a lump sum directly to survivors when a policy holder dies. The insurers pay uncompetitive interest rates and offer misleading guarantees about the safety of accounts that aren’t federally insured.”
So loud has been the outcry that Representative Debbie Halvorson (D-Illinois) has introduced legislation “that would require companies such as Prudential Financial Inc. to tell beneficiaries how their money will be invested and how much the insurer stands to make from holding the funds.” Cuomo’s fraud investigation has already resulted in subpoenas for Prudential Financial and MetLife, Inc.
The new NAIC working group will be co-chaired by Roger Sevigny, NAIC past president and insurance commissioner of New Hampshire, and Thomas Sullivan, NAIC life insurance and annuities committee chair and insurance commissioner of Connecticut.
“We want consumers to have as many choices as possible in how they receive their claims payments, but we also want to make certain the terms of those payments are fully disclosed in language that is clear and easy to understand,” Jane Cline, NAIC president and West Virginia insurance commissioner, said in a statement.
Regulators working through the Financial Condition Committee will also consider enhancements to life insurance product reporting requirements; this will be in addition to whatever action is taken by the working group.