ACLI Cites Consumer Benefits of Retained Asset Accounts; Legislators Call for Disclosure

The American Council of Life Insurers, Washington, says that retained asset accounts do provide value to grieving beneficiaries and that their full value needs to be explained.

Toward that end, ACLI held a press briefing this morning. The effort to present more information on the subject occurred just days before state insurance regulators will take up the issue during the summer national meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

The issue is a particularly emotional one because it involves death, money and in a number of cases, the families of deceased enlisted military service members.

It also comes as state insurance legislators represented by the National Conference of Insurance Legislators, Troy, N.Y., are calling for more transparency and disclosure and Sen. Charles Schumer, D-N.Y., is preparing legislation to address the issue. And, New York Attorney General Andrew Cuomo is looking into the matter, issuing subpoenas to life insurers to determine whether any deliberate or inadvertent wrongdoing is involved.

During the ACLI briefing, Paul Graham, ACLI senior vice president-insurance regulation and chief actuary emphasized the accounts’ safety and emphasized that the spreads between what insurers are paying in interest on the accounts and what they are receiving on the deposited monies in their general accounts is not “gouging.”

The reason, he explained, is that some assets that are being held in the general account are very long-tailed assets that receive more interest because of the greater risk of tying up money for a longer period of time. Retained asset accounts are not long-term but rather short-term liabilities that require a match with short-term assets, Graham adds. Short-term assets are earning interest of 0.25% to 0.5%, not 5-6% received for 30-year bonds, he continued.

So, the spreads on retained asset accounts are actually very small, Graham maintained. The length of time that retained asset accounts are open range from 30-120 days, he added. Graham said that he knows through anecdotal accounts from companies and from years spent working at an insurance company.

In response to an inquiry on whether research has been conducted to determine the average length of time a retained asset account is held, Jack Dolan, ACLI spokesperson, said that the ACLI had not conducted any survey on the issue but anecdotal information from companies suggests that up to 90 percent is held for a year or less.

Graham also noted that retained assets are safe because they are covered by guaranty funds in the event of an insurer insolvency. In fact, he said, the guaranty funds would cover $300,000 while the FDIC coverage is $250,000. And, according to Graham, while the accounts have a check book feature that allows withdrawal at any time up to the amount of the available death benefit, they do not allow deposits so they are not considered bank accounts.

Graham also pointed out a 1994 model bulletin issued by the NAIC which lays out suggested disclosures including interest rates and tax implications.

When asked whether the ACLI had a conversation with Schumer, Kim Dorgan, ACLI senior executive vice president of public policy, said that the ACLI had spoken with the senator’s staff and that it has not seen legislation at this point.

NCOIL also issued a statement on the issue. Its President, Rep. Robert Damron, D-Nicholasville, Ky., stated that “NCOIL wants to make certain that complete and proper disclosure, transparency and accountability are in place and that beneficiaries are fully informed—in bold type and in layman’s language—of their options prior to such a tragic and life-altering event. NCOIL has grave concerns and awaits with extreme interest the outcome of current probes, including Veteran Administration and New York Attorney General investigations.”

He continued, “…state legislators want to guarantee that survivors are informed of options up front so that they can decide what they want to do with their death benefits. Though these accounts may have existed for decades, we have learned during this recent financial crisis that we can not always take accepted practices at their face value and that even time-honored customs can be like minefields—embedded with danger.”

“What is needed,” Rep. Damron continued, “is a model (a Beneficiaries Bill of Rights) to guide the remaining 44 states and other jurisdictions through these minefields. An NCOIL model could explore, among other things, the benefit, as proposed by Pennsylvania Commissioner Joel Ario, of forbidding insurance companies from using retained-asset accounts as a default method of paying a death benefit.”

Damron adds that “NCOIL is already working on a model disclosure law for its Annual Meeting that requires insurers to notify policy owners of their rights and options before they lapse or surrender their life insurance policy. The NCOIL Annual Meeting will be held in Austin, Texas, on November 17 through 21.”