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Consumer Watchdog Demands More Info on RAAs

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A consumer advocate group is urging the National Association of Insurance Commissioners to demand more information from life insurers about the insurers’ use of retained asset accounts (RAAs).

In a statement to an NAIC working group probing insurers’ use of RAAs, Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said the committee should ask insurers to provide more information about what happens to RAAs after they are set up.

RAAs are established by many insurers when a policy owner dies. They function as a kind of checking account, allowing beneficiaries to tap funds as they need them, rather than receiving benefits in a lump sum.

Critics say many RAAs lie dormant for years and that some beneficiaries may not even be aware they exist or that they can receive benefits as a lump sum. They also complain that RAAs often pay lower interest rates than bank accounts and are not insured by the Federal Deposit Insurance Corp.

Defenders say the accounts pay rates comparable to other accounts, are liquid, and are backed by states. The advantage of RAAs, supporters say, is that they give grieving beneficiaries time to decide prudently what to do with the benefits from a policy.

Birnbaum told the NAIC working group needs to find out how many RAAs exist with no withdrawal activity, for how long they have been dormant, how much money lies in those dormant accounts, and other details.

In addition, the working group should obtain from each insurer a 10-year history of changes in interest rate earned by beneficiaries on RAAs as well as fees they charged beneficiaries over the same period, Birnbaum stated.

The additional data is necessary to allow regulators to review and evaluate how RAAs are used by beneficiaries, he said.

“The NAIC must obtain information about the duration of RAAs to meaningfully inform the regulators’ review of RAAs,” Birnbaum stated.


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