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.”