National Association of Insurance Commissioners Retained Asset Accounts Working Group Updates Disclosure Bulletin for Executive Committee Approval on December 16

After adopting several technical amendments to a revised version of the Retained Asset Accounts Bulletin, (“Bulletin”) the National Association of Insurance Commissioners (“NAIC”) Retained Asset Accounts Working Group (“Working Group”) approved a final draft on December 13, 2010.  Originally created in 1995, the Bulletin would be used in its newly revised form to establish disclosure standards relating to the payment of life insurance benefits to a beneficiary by means of a retained asset account (“RAA”).

Specially created in August 2010 to examine life insurance claims settlement practices involving the use of RAAs, the Working Group is composed of members from the NAIC Life Insurance and Annuities Committee and the Market Regulations and Consumer Affairs Committee.  Their effort will include a focus on consumer disclosure issues.

The amended Bulletin now will be considered for approval by the NAIC’s Joint Executive Committee/Plenary meeting on December 16.  The meeting, scheduled for 3:00 p.m. (ET) will be accessible by teleconference.

Most of yesterday’s meeting discussion focused on minor changes that would clarify meaning or intent.

The first revision involved adding the following language from a National Conference of Insurance Legislators (“NCOIL”) RAA model law to the Bulletin’s definition of “purpose:”

“Retained Asset Account means any mechanism whereby the settlement of proceeds payable under a life insurance policy including but not limited to the payment of cash surrender value is accomplished by the insurer or an entity acting on behalf of the insurer depositing the proceeds into an account where those proceeds are retained by the insurer pursuant to a supplemental contract not involving annuity benefits.”

The language was added after several Working Group members said the Bulletin’s definition of RAA should be changed to match a recently-approved NCOIL definition in order to avoid future problems with consistency.  

After several Working Group members said that many insurers use RAAs as an automatic settlement option and that the Bulletin’s language should be clarified, Section Two of the Bulletin, which pertains to supplemental contracts, was revised as follows:

“If the insured settles benefits through an RAA the insurer shall provide the beneficiary with a supplemental contract …”

The following changes were made to Section Three of the Bulletin: 

• The title was changed to “Disclosure of Retained Asset Accounts to Beneficiaries.”
• The first paragraph was revised to read “The insurer shall provide the following written disclosures to the beneficiary before the account is selected, if optional, or established if not.”
• The word “actual” was added before the word “interest” in item “H.”
• The word “Association” was changed to “Organization” in item “J.”

Discussion touched upon the disclosure of RAA interest rates.  Some meeting participants expressed concern over the lack of provisions in the Bulletin that would require insurers to list actual interest rates in their RAA disclosures.

“I think for a policyholder, for beneficiaries, to make appropriate choices, they need to know what the interest rate is,” said a representative from California.  “I don’t see how consumers can make appropriate choices without that being somewhere in this document.”

Because interest rates fluctuate, listing a specific rate in the disclosure was seen as unfeasible.  Other meeting participants thought the wording “minimum interest rate” was too vague.

With no further business before the Working Group, the meeting was adjourned.

To view comments submitted on the Bulletin by various interested parties, click on the hyperlinks below:

• ACLI Letter
• ACLI Revisions
• Alabama Insurance Department
• Consumer Representatives
• MetLife
• Pennsylvania Letter
• Pennsylvania Revisions
• United Policyholders
• Washington

To view the most recently revised Bulletin draft, click here.

 

 

Should you have any questions or comments, please contact Colodny Fass.

 

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