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Lawsky Hopes to Make Retained Asset Accounts a National NAIC Issue

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New York Department of Financial Services Superintendent Benjamin Lawsky said he hopes that his department’s focus on retained asset accounts (RAAs) will become a national standard, even though he said it will take some time for the industry to assimilate what New York has recently required.

But other states will get there, he hopes.

New York State became the first state to ever require life insurers to pay beneficiaries of life insurance claims immediately, effectively prohibiting the use of retained asset accounts under a circular letter issued last month.

Lawsky’s efforts hav a long road ahead in this goal, judging by the subject’s somewhat cool reception at the NAIC meeting.

Lawsky was speaking at the NAIC Spring National Meeting in New Orleans at a meeting of the Life and Annuities (A) Committee after NAIC funded consumer advocate Peter Kochenburger Executive Director, Insurance Law Center at the University of Connecticut School of Law broached the subject.

Kochenburger asked that the NAIC take this up at its next meeting, although there was no promise of that.

Similarly, when Lawsky ventured out to speak on the subject, no commissioner on the committee joined him in expressing concern or comment.

Lawsky noted that when asked, most beneficiaries prefer lump sum payments, he cited a GAO report entitled “Retirement Benefit and Retained Asset Account Disclosures Could Be Improved.” When consumers have the option to choose between RAAs and lump-sum check payments, the November 2011 report states, the overwhelming majority choose lump-sum check payments.

The issue had risen to prominence after some media reports suggested beneficiaries weren’t getting their payments in a timely fashion.

Bloomberg News published a series of stories dealing with complaints by military families that the funds were inappropriately being placed in RAAs and that insurers were earning money on the spread between the amount they earned by investing the money and the amount of interest they paid to the beneficiary.

Suits were filed by beneficiaries, several in Massachusetts federal courts, last year over the issue, and both the Veterans Administration and the Defense Department are looking into the issue.

An NAIC model bulletin drafted in 2010 would require insurers to disclose various important facts and features relating to RAAs, such as how a beneficiary may access the entire account amount, interest rate information, how the account funds are guaranteed, and how beneficiaries can learn about their guaranteed limits of coverage, but some have said it does not go far enough.

Critics have said that New York is overreaching, and expecting more from its insurers than the minimum regulations set forth. 

The GAO report notes that, according to the American Council of Life Insurers (ACLI), “RAAs have existed since 1982, and many insurers provide them for both group and individual life insurance policies. When an insured person dies, the life insurance company that issued the policy may place the death benefit proceeds into an RAA, which accrues interest for the beneficiaries from the day the account is established for as long as the funds remain in the account. Beneficiaries have full and immediate access to their funds and can withdraw some or all of the funds at any time without penalty.”

The GAO report, which examined MetLife, and included interviews with industry and the NAIC, found disclosures wanting, though. It stated that “they do not explicitly state that RAAs involve a new contract between beneficiaries and MetLife that is regulated by states rather than the federal government and that involves state-based protections with certain limitations. As a result…beneficiaries may be unaware that new contractual terms and conditions govern their RAAs. They also may not fully understand how their RAAs are protected and what the limitations of that protection might be. Finally, the disclosures do not provide the information that beneficiaries need to find the proper regulator should they have questions about their accounts—a problem that is complicated by the fact that the regulators themselves may disagree over which one has jurisdiction.” 

Under the New York circular letter, insurers doing business in the state said that funds should not be held in so-called retained asset accounts, “unless the purchaser of the policy or the beneficiary specifically asks to receive the money in another form.”

The circular letter says that when a life insurance policy requires the lump sum payment of death proceeds, the insurer should send the beneficiary a single check, the state Department of Financial Services said.

When insurers provide options, they should not send a retained asset account unless the beneficiary specifically selects that option, the circular says.

“Beneficiaries who make no selection should receive a single check for the total amount,” the letter said.

The DFS said that the letter also describes the detailed information that insurers should disclose in a clear and conspicuous manner, so that beneficiaries are fully informed about retained asset accounts before they elect how benefits will be paid.

“For example, the insurer should clearly list all possible options for receiving the funds, and should make a single check for the total proceeds one of the options,” the circular says. A circular is a legal directive to an insurer in New York.


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