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RAA Issue Has Legs

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While state insurance regulators have responded to the sudden controversy over retained asset accounts issued by insurance companies with a strongly-worded consumer alert, the uproar over the instruments is unlikely to subside quickly.

That is because the issue has drawn interest from the Obama administration, House and Senate committees, independent federal regulators, consumer advocates and even state legislators.

Retained asset accounts are offered by insurance companies to retain the proceeds of life insurance policies paid to beneficiaries. This long-standing industry practice has come under intense scrutiny recently following the publication of a Bloomberg article which criticized RAAs, especially those attached to the life policies of military personnel, as little more than an effort to withhold death benefits from family members of soldiers slain in battle. The article also drew attention to the fact that as long as funds in RAAs remain unclaimed, both the beneficiaries and the insurers gain interest on the money, though insurers make more than beneficiaries.

The industry contends use of retained-asset accounts is “compassionate” and an appropriate alternative to forcing people “to make a big financial decision at a time of maximum stress.”

But, as acknowledged by Todd Katz, executive vice president of U.S. business at MetLife at a hearing on the issue at the summer meeting of the NAIC in Seattle last Sunday, these accounts “are also good for MetLife,” which aims to grow assets, he said. “Nothing here is secret,” he said. “We do make a profit on TCA.”

Key issues for the Veterans Administration and the Department of Defense is that they bear relatively low interests, and disclosures to the beneficiaries of fallen military personnel are insufficient.

The NAIC established a special task force to deal with the issue, and issued a consumer alert immediately after the hearing.

The consumer alert said that, “You may be able to earn a higher rate of interest on the life insurance proceeds if you select a different payout option.”

And, the alert added, “While the documents you receive might look like a checkbook, it might actually be drafts, which are similar to checks, but different in some ways.”

Prior to the hearing in Seattle, Jane L. Cline, NAIC president and West Virginia insurance commissioner, said that regulators have received “few complaints or questions” about RAAs.”

The need for the NAIC to move quickly on this issue was underscored by the testimony at the hearing of Rhode Island State Representative Patrick Kennedy, former president of the National Conference of Insurance Legislators.

He said current NCOIL President, New York State Representative Robert Damron, is in the process of pushing a model law that would insure consumer protection and regulate such accounts at the state level, where few states do today.

The aim of the law would be to provide proper disclosure and transparency. It would also bar insurers from opting beneficiaries into an RAA plan if the policyholder has failed to designate how payments are to be made.

Amongst congressional committees taking a keen interest in the accounts, including conducting investigations and likely to hold hearings are the House Oversight and Government Reform Committee and the Senate Banking Committee.

In a recent letter to the chairman of the Senate banking panel, Sen. Richard Shelby, R-Ala., called for a hearing.

He said he wants the panel to examine the practices of the Department of Veterans Affairs and insurance companies in paying life insurance benefits to families of fallen military personnel.

“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,” Shelby said.

“Most seriously, the reports have suggested that life insurance companies may not be fairly handling the proceeds of these life insurance policies,” he added.

He said the banking panel “should hold a hearing to examine these reports and determine if any unfair practices exist.”


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