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Life Health > Health Insurance > Life Insurance Strategies

RAAs: FDIC, NCOIL Eye Disclosure

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WASHINGTON BUREAU — The Federal Deposit Insurance Corp. (FDIC) and the National Conference of Insurance Legislators (NCOIL) say insurers should make sure insurance beneficiaries understand how retained asset accounts work.

FDIC Chairman Sheila Bair has sent a letter to Therese Vaughan, chief executive officer of the National Association of Insurance Commissioners, Kansas City, Mo., expressing “deep concerns” about whether issuers of retained asset accounts are making it clear to consumers that the accounts are not federally insured.

Kentucky state Rep. Robert Damron, D-Nicholasville, Ky., the president of NCOIL, Troy, N.Y., says he has drafted a “beneficiaries bill of rights” that can ensure strong RAA consumer protections and clear RAA disclosures.

Meanwhile, there are signs that the NAIC may be preparing to arrange for a prompt response to the concerns at its summer meeting in Seattle.

Bair refers in her letter to recent press coverage of the RAA issue.

“Public understanding of FDIC insurance and when and how our guarantee applies is of the highest importance to us,” Bair says in the letter to Vaughan.

The FDIC also is sending a letter to insured depository institutions. Institutions that are involved with RAAs “must be vigilant in minimizing consumer confusion about FDIC insurance coverage,” officials say in the directive.

“Participating banks should work with the insurance companies offering RAAs to make sure that all documents provided to consumers appropriately reflect the participating banks’ role in the transactions and disclose to policyholders and beneficiaries whether or not the RAAs are insured by the FDIC,” officials say.

Damron noted last week that 44 states appear to have no RAA laws or regulations.

The proposed beneficiaries bill of rights model law drafted by Damron would require insurers to give beneficiaries a full explanation of an RAA’s features, including an explanation of whether the monies are guaranteed by the FDIC or by a state guaranty fund.

The model would require insurers to describe the method used to determine the interest rate being paid on cash in the RAA.

Damron says the model also would require insurers to report in their annual financial statements on the number of beneficiaries with RAAs in place, the total funds held in the RAAs, RAA investment allocations, RAA service fee totals, and the funds necessary to cover RAA liabilities.

An NAIC working group is preparing to address the RAA concerns Sunday in Seattle.

Behind the scenes, insurers and the working group appear to agree

that insurers should provide a specific disclosure stating that RAAs are not federally insured, other disclosures stating that the products are not guaranteed, and an increase in RAA yields.

New York Attorney General Andrew Cuomo, who has subpoenaed the records of a number of insurers who have offered RAAs, apparently is preparing to drop the issue if insurers agree to pay RAA holders higher returns.

The NAIC believes that “all disclosures should be clear and easy to understand,” a representative for the group says. “The NAIC works to educate consumers on a variety of insurance issues and is in the process of creating a consumer alert to help minimize confusion.”


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