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RAA: NCOIL Seeks Comments on Model Law

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WASHINGTON BUREAU — The National Conference of Insurance Legislators has unveiled a proposed model law that would impose new disclosure and process standards on retained asset account providers.

The proposed “Beneficiaries Bill of Rights” legislation would no longer allow insurers to use an RAA as a default option for paying life insurance death benefits. Most life insurers that have RAA programs now use the RAA benefits payment method as the default option.

Before an insurer could provide an RAA for a policy beneficiary, it would have to get written consent from the beneficiary, or, in the case of a group contract, the policy owner, before transferring the proceeds of a policy to an RAA.

Before an insurer could put money in an RAA, the insurer would have to tell the beneficiary that other options include the immediate lump-sum payment of all proceeds.

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). 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.

The National Association of Insurance Commissioners, Kansas City, Mo., also is looking into RAA regulation.

The Damron proposal includes a variety of new disclosure provisions.

An insurer offering an RAA would have to tell the beneficiary about the interest rate that would be paid, explain whether the account was equivalent to a checking or draft account, and describe the account’s features.

An insurer would have to report specific information about the account to a state regulator each year and describe the funds available to cover RAA liabilities. The data would be supplied on the “blanks,” or accounting statements, that each insurer files in its state of domicile.

NCOIL President Robert Damron, D-Nicholasville, Ky., says the NCOIL Life Insurance & Financial Planning Committee will hold a conference call in early September to review any comments. NCOIL officials hope to have a final measure ready for consideration at NCOIL’s annual meeting, which is set to start Nov. 18 in Austin, Texas.

Comments on the proposed model are due Sept. 1.


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