WASHINGTON BUREAU — State insurance regulators may not have any explicit legal authority to regulate retained asset accounts, according to Robert Hunter, a former Texas insurance commissioner.
Hunter, director of insurance at the Consumer Federation of Insurance, Washington, says the accounts are “extra-contractual,” because there is nothing in the typical life insurance policy that provides for use of the accounts.
RAAs are not insurance products, because offering them involves no transfer of risk, Hunter says.
“Insurance regulators don’t have the right to oversee them, approve them, set standards for them, or anything, nor do the guaranty funds apply,” Hunter says.
Because of the lack of disclosure, the apparent lack of regulatory protection, and the apparent lack of guaranty fund protection, use of RAAs is “very high risk” for life insurance policyholders and policyholders’ beneficiaries, Hunter says.
RAAs are accounts life insurers use to hold beneficiaries’ benefits until the beneficiaries withdraw the cash using checks, payment cards or other means.
Critics say life insurers earn high returns on the cash and pay beneficiaries low rates without giving the beneficiaries adequate notice that the cash is held in something other than a bank account insured by the FDIC. Supporters say RAAs give grieving beneficiaries a chance to deal with their emotions before addressing financial concerns, and that funds guaranteed by an insurer may be safer than bank deposits insured by the FDIC.
In other RAA news:
- The New Jersey Department of Banking and Insurance says its commissioner told Prudential Financial Inc., Newark, N.J. (NYSE:PRU), that the company had “acted properly” in connection with administration of an RAA.
Tom Considine, the state insurance and banking commissioner, approved of the way Prudential had handled a $400,000 life insurance benefit paid in connection with the death of a soldier killed in Afghanistan in 2008, according to Marshall McKnight, a New Jersey department spokesman.
The beneficiary of the policy, and of the RAA, was the soldier’s mother.
Considine issued a statement about the matter in response to a letter Prudential sent him Aug. 4.