NCOIL Life Insurance and Financial Planning Committee Debates Proposed Regulation of Retained Asset Accounts

 

Chaired by U.S. Senator Ralph Hudgens (R-GA), the National Conference of Insurance Legislators (“NCOIL”) Life Insurance and Financial Planning Committee (“Committee”) held a teleconference on September 8, 2010 to discuss a proposed Model Law that would regulate the disclosure, transparency and accountability of retained asset accounts (“RAAs”) as applicable to life insurance death benefits.  The Model Law, also known as “The Beneficiaries’ Bill of Rights,” provides that beneficiaries shall be fully informed–both in bold type and in layman’s language–of their options to withdraw RAA funds.

A markup of the Beneficiaries’ Bill of Rights, along with the meeting agenda, is attached for review.  Hyperlinks to interested party written comments are provided below.

Committee members discussed their opinions that many policyholders do not understand RAAs.  National media has recently brought attention to this issue, specifically about the manner in which the families of fallen service members receive life insurance benefits under the Department of Veterans Affairs’ Service Members Group Life Insurance program.  This prompted U.S. Senator Richard Shelby (R-AL), the highest ranking Republican on the Senate Banking, Housing and Urban Affairs Committee, to issue a request to Chairman Chris Dodd (D-CN) to hold a hearing on retained asset accounts to determine whether any unfair related practices exist.

NCOIL Committee members indicated that they felt the issue should be addressed promptly, and with a common sense approach.  The overall goal of NCOIL’s proposed legislation is to protect consumers and address the issue on the state level.  Ultimately, it was agreed that it should be the consumer’s choice whether to fund a RAA with death benefits or utilize another vehicle for the death benefits.   

NCOIL’s proposed Beneficiaries’ Bill of Rights was drafted based on current laws enacted in Maryland, North Carolina and several other states.

Part of the September 8 teleconference was reserved for interested party comments.  Among the organizations that provided input, representatives from the American Council of Life Insurers opined that RAAs work well for beneficiaries and allow adequate time to decide how to utilize or invest life insurance proceeds.  Overall, most comments provided during the meeting indicated that RAAs are a flexible option that allows a beneficiary to exercise his or her freedom of choice. 

Input was also provided by representatives from the Center for Economic Justice and the Center for Insurance Research, who both agreed that more information is needed in order to promptly address the issue.  Questions remain about whether state guaranty associations would insure RAAs in the event of insurer insolvency.  The representatives indicated that an RAA essentially creates a creditor and debtor relationship between the insurance company and the beneficiary, inasmuch as RAAs are part of the insurance company’s general assets, which it may invest. 

A representative of the Connecticut Insurance Department agreed that more information on the issue is needed, since the apparent purpose of the Model Law seems to be based solely on media reports.  A representative of the Louisiana Department of Insurance supported this statement.

Representatives from the National Association of Insurance Commissioners (“NAIC”) informed meeting participants that the issue is being evaluated and related discussions will be held at the NAIC’s upcoming 2010 Fall National Meeting.  Both the NCOIL and the NAIC expressed their desire to work with one another on this topic.  However, NCOIL will continue to pursue the proposed model legislation notwithstanding the outcome of the NAIC’s meeting.

The definition of RAAs and whether they should be the default method of providing beneficiaries with the life insurance proceeds was heavily debated. 

After listening to interested party comments, the Committee adopted several changes to the Beneficiaries’ Bill of Rights.     

To view various interested party written comments, click on the hyperlinks below.

• American Council of Life Insurers
• Assurant
• Center for Economic Justice
• Center for Insurance Research
• Connecticut Insurance Department
• Louisiana Department of Insurance
• MetLife
• New Jersey Department of Banking and Insurance
• Pennsylvania Insurance Department
• Washington State Office of the Insurance Commissioner

Due to time constraints, the proposed model legislation was not fully reviewed.  Another meeting will be scheduled to discuss model’s remaining sections. 

 

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