Senator Richard Shelby (R-Alabama), the ranking minority member on the Senate Banking, Housing, and Urban Affairs Committee, plans to hold a hearing in September to explore the recent negative reports that have surfaced regarding retained asset accounts (RAA), which are accounts life insurers use to hold beneficiaries’ benefits until the beneficiaries withdraw the cash through the use of a “checkbook.”
Shelby’s August 11 announcement of plans to hold a September hearing on RAAs came just days before the National Association of Insurance Commissioners’ (NAIC) release on August 15 stating that the insurance regulator’s newly created Retained Asset Accounts Working Group met over the weekend to review the use of RAAs by insurance companies and to study whether appropriate consumer protections are in place. The RAA working group also issued a consumer alert on RAAs.
Shelby said in the release that “recent press reports have raised concerns about the manner in which family members of fallen service members receive life insurance benefits under the Department of Veterans Affairs’ Service Members Group Life Insurance program. Most seriously, the reports have suggested that life insurance companies may not be fairly handling the proceeds of these life insurance policies. The Banking Committee should hold a hearing to examine these reports and determine if any unfair practices exist.”
In a letter to Senator Christopher Dodd (D-Connecticut), chairman of the Senate Banking Committee, Shelby said that reports “have suggested that life insurance companies may be unjustly profiting through the use of retained asset accounts.” These accounts, he continued, “allegedly allow insurance companies to earn interest on the proceeds of insurance funds paid to beneficiaries at a rate substantially higher than the amount of interest the companies pay beneficiaries. In addition, it is unclear whether service members and beneficiaries understand the full range of financial choices offered by SGLI.”
Insurers like Prudential and MetLife, however, are defending RAAs and claim there’s nothing shifty about the accounts. In a release on its Web site, Prudential says that “retained asset accounts, which for nearly two decades have provided a safe place for life insurance beneficiaries to hold their money, have in recent days come under a great deal of criticism that is needlessly inflammatory and flat-out wrong.” Prudential goes on to “set the record straight,” stating that beneficiaries are “almost always better off using a retained asset account rather than receiving a ‘check’ in the mail.”