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RAA Panel Packs the Conference Room

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SEATTLE–It was standing room only at the first meeting of the National Association of Insurance Commissioners’ (NAIC’s) Retained Asset Account (RAA) Working Group.

Commissioners sat for more than two hours listening to testimony from carriers, guarantee association representatives, consumer advocates and a legislator.

The RAA session, which took place Sunday here at the NAIC’s summer meeting, attracted about 200 attendees to the conference room and at least a dozen insurance commissioners to hear opening testimony on what the co-chairmen said will be a quick process to take whatever action is necessary to address the controversy.

Before the meeting, during the meeting’s opening session, NAIC President Jane Cline noted that regulators had received “few complaints or questions” about RAAs, but she said media stories about the accounts had raised questions about consumer choice and insurer disclosure practices.

She said one aim of the NAIC will be to reach out to consumers with an action notice explaining RAAs.

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 Federal Deposit Insurance Corp. (FDIC). In some cases, critics say, getting cash out of RAAs may be difficult.

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.

Rhode Island state Rep. Brian Kennedy, D-Hopkinton, R.I., a former president of the National Conference of Insurance Legislators, Troy, N.Y., told attendees that the current NCOIL president, Kentucky state Rep. Robert Damron, D-Nicholasville, Ky., is promoting a model law that would provide for regulating RAAs at the state level, which few states do today. The model would create new disclosure requirements, and it would bar insurers from opting beneficiaries into an RAA if the policyholder has failed to designate how payments are to be made.

Connecticut Insurance Commissioner Thomas Sullivan, task force co-chairman, said he did not feel a model law was the best way to deal with this issue. Kennedy said NCOIL believes it has to act before Congress does.

Sullivan and Kennedy said they look forward to working together to resolve the issue.

The other working group co-chairman, New Hampshire Commissioner Roger Sevigny, said the task force plans to have an action plan completed by November.

During testimony, Todd Katz, who represented MetLife Inc., New York (NYSE:MET), and Bernard Winograd, who represented Prudential Financial Inc., Newark, N.J. (NYSE:PRU), talked about their companies’ experience with RAAs. They said

a small fraction of benefits involve these programs, and that the vast majority of beneficiaries take the entire sum within a few months after having access to the accounts.

While the accounts are not FDIC-insured, they do have the backing of the financial institutions, and in the unlikely event of a company default, they would be protected by state guaranty funds, Katz and Winograd said.

Katz and Winograd said the RAAs are fully disclosed to consumers, and that the benefit of the RAAs is to give consumers time to make important financial decisions after dealing with a traumatic loss. The RAAs are profitable, but RAAs account for just a small fraction of insurers’ business, the executives said.

Peter Gallanis, who represented the National Organization of Life and Health Insurance Guaranty Associations, Herndon, Va., told commissioners that few life companies have become insolvent over the past 20 years and that guaranty funds have the liquidity to cover major losses. He noted that an insolvent life insurer typically has ample assets to pay claims, and that the guaranty funds typically end up covering only a small fraction of claims. He said RAAs would be covered by the guaranty funds.

Four consumer advocates who spoke at the session urged the task force to closely examine the differences in benefits between companies to ensure that all consumers are receiving a product that benefits them. The task force also needs to closely examine transparency and any conflict of interests, the consumer advocates said.

Paul Graham, a senior vice president at the American Council of Life Insurers, Washington, issued a statement suggesting that the lack of consumer complaints about RAAs is a strong indicator that disclosure is working.

“However, complete transparency is important, and ACLI believes it to be entirely reasonable to re-examine the nature and timing of the disclosures that are required,” Graham said. “We pledge our complete support to our regulators as they re-examine the best method of setting nationwide uniform disclosure requirements for retained asset accounts.”


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