In an effort to reach a resolution by the fall meeting of state insurance legislators, a series of calls are planned to address potential issues associated with retained asset accounts and the need to create a Beneficiaries Bill of Rights, according to Rep. Robert Damron, D-Nicholasville, Ky., president of the National Conference of Insurance Legislators, Troy, N.Y.
During an initial discussion, Damron says that a large part of the discussion centered on whether death benefits would be placed in RAAs by default if a beneficiary does not identify a preferred method of receiving benefits. Damron maintains that there should not be a simple default into an RAA.
Comments received from interested parties include:
--The American Council of Life Insurers, Washington, “During the past few weeks, retained asset accounts have been falsely portrayed as anti-consumer and lacking sufficient disclosures. We completely disagree and assert, to the contrary, that these accounts provide a valuable service to policyholders and their beneficiaries and are the best settlement option available.” ACLI noted that a beneficiary can “transfer the entire balance of his or her retained asset account into a bank account immediately upon receipt or anytime thereafter, just as if he or she had deposited a bank check into his or her bank account.”
ACLI is proposing an enhanced sample bulletin and recommending that NCOIL adopt the same approach including a requirement that at the time of claim, a notice to the beneficiary should include:
1) The benefit payment options available for selection;
2) Notification that a beneficiary has access to the full value of his or her account once the account is established;
3) Whether the account is held within a depository institution account or the insurer’s general account;
4) Whether the account funds are protected by the FDIC.
At the time of delivery of the retained asset account, notice to the beneficiary should include:
1) Notification that the beneficiary has access to the full value of his or her account;
2) The amount of interest that the account will earn and how the interest rate is determined;
3) Whether any fees and charges may be assessed on the account and their amount (e.g., for
overdraft), and whether there is a minimum amount for which a check or draft may be written;
4) Whether the account funds are protected by the FDIC or a state guaranty association (for those
states that require delivery of a guaranty association disclosure notice);
5) Insurer contact information in case the beneficiary has any questions.
--From Connecticut Insurance Commissioner Tom Sullivan, chair of the Life & Annuities “A” Committee of the National Association of Insurance Commissioners, Kansas City, Mo., comes a call not to rush to judgment and to gather “facts” which he says neither NCOIL nor the NAIC have at this point. He also noted that model laws can take years to put in place while bulletins can be enacted more quickly.
--From the Center from Economic Justice in Austin, Texas, comes a suggestion that the definition of a retained asset account in the July 1995 NAIC model bulletin be changed to:
“Retained Asset Account means any supplemental contract, policy provision, agreement or other mechanism by which an insurer does not make immediate cash payment of the full benefit amount of a life insurance policy. Retained asset accounts include, but are not limited to, agreements in which the insurer holds the death benefit and issues a “checkbook” or other means of accessing the death benefit funds in the future.”
The CEJ also made recommendations including suggestions that A consumer or policyholder makes an affirmative selection of a retained asset account instead of immediate cash payment as the benefit settlement procedure for the policy. The retained asset account option may not be the default benefit settlement option. And CEJ suggests that an iinsurer, at least annually, obtains affirmative ongoing selection by the policyholder of the retained asset option instead of immediate cash payment as the benefit settlement procedure for policy. Additionally, CEJ is recommending that an insurer provide a monthly statement.
--From the Center for Insurance Research, Cambridge, Mass., comes a suggestion that RAAs be specifically identified in annual statement reporting so that they are distinguishable from other types of supplementary contracts. And, CIR is recommending that insurers be required to disclose whether RAA funds are held in a general account or elsewhere.
--From Louisiana Insurance Commissioner James Donelon comes a statement that in Louisiana RAAs have not been a problem but that if NCOIL decides to proceed with a Bill of Rights, then it should be expanded to cover “any type of account or investment in which the insurer retains any interest in the death benefit, whether directly or indirectly, including through a related party, and any method of payment other than a lump sum payment.”
--From the Pennsylvania insurance department comes the recommendation that removing RAAs as a default may be premature and that they can be a “suitable option” for distributing benefits.
--From Washington Insurance Commissioner Michael Kreidler writes that he is not convinced RAAs are “necessarily a bad thing.” He recommends focusing on disclosure, security and fiduciary management. He also recommends “clearly defining the security to which RAAs are entitled.”
Damron also addressed a possible review of NCOIL’s life settlement model as well as a model that would require insurers to disclose all options if a contract is about to be surrendered or to lapse. He said that state legislators will first look at life settlement laws around the country before making a decision on whether the settlement law needs to be changed. But he said that the disclosure model law would advance.