In 2010, the insurance industry was the target of a lot of bad press regarding retained asset accounts (RAAs) that were provided to the beneficiaries of military service members killed in action.
A midsummer news exposé revealed that many beneficiaries were unaware that what they received at the time of a loved one’s death was not a regular checking account, but a book of checks to be drawn on an insurance company.
The quiet change in policy that was responsible for RAAs being handed out in place of checks was only part of what made everyone so angry. In 1999, in accordance with a verbal agreement with the Veterans Administration (VA), Prudential—the then-provider of benefits for Servicemembers’ Group Life Insurance (SGLI)—began providing RAAs instead of checks when a military member made the ultimate sacrifice. (The policy was not amended in writing to cover this change until 2009.)
An even more bitter pill to swallow was the fact that insurance companies collected more interest on the funds in RAAs than they paid out to the beneficiaries. So was the fact that beneficiaries were often completely ignorant of the fact that they could put the money in a higher-yield vehicle and receive a better rate of interest. On top of that was the news that money in RAAs was not FDIC-insured, although of course death benefits are protected, via each state’s insurance guaranty fund.
Lawsuits were threatened, investigations launched and criticism abounded. (See “Life Insurers Under Fire,” Investment Advisor, November 2010)
Big Apple Bites Back
One of the states to launch an investigation into the matter was New York. Then-Attorney General Andrew Cuomo characterized New York’s action as a “major fraud investigation,” and on Feb. 24, 2012, New York regulators told insurance companies that they should no longer provide death benefits in the form of RAAs to military members’ families by default. The family must request such an account.