Regulators Call for Better Oversight of Insurers' Retained-Asset Accounts
Regulators Call for Better Oversight
Andrew Harrer/Bloomberg
Susan Voss, president-elect of the National Association of Insurance Commissioners, speaks during an interview in New York.
Susan Voss, president-elect of the National Association of Insurance Commissioners, speaks during an interview in New York. Photographer: Andrew Harrer/Bloomberg
Aug. 3 (Bloomberg) -- Jane Cline, president of the National Association of Insurance Commissioners, talks with Bloomberg's Julie Hyman about insurance companies' so-called retained-asset accounts. The NAIC said last week it is reviewing the accounts after Bloomberg Markets reported that the funds allow more than 100 carriers to earn income on $28 billion owed to life insurance beneficiaries. (Source: Bloomberg)
July 28 (Bloomberg) -- David Evans talks with Bloomberg's Scarlet Fu about his investigation into retained-asset accounts by life insurers and how the insurers profit from these accounts at the expense of grieving families. (Source: Bloomberg)
U.S. insurance watchdogs need to improve oversight of life insurer accounts that allow companies to retain death benefits and profit on the funds, state regulators said today.
“Obviously this is not a topic we’ve been spending a lot of time on,” said Susan Voss, president-elect of the National Association of Insurance Commissioners, in an interview today at Bloomberg headquarters in New York. “That’s not to say that we can’t do a better job.”
The NAIC said last week it is reviewing so-called retained- asset accounts after Bloomberg Markets reported that the funds allow more than 100 carriers to earn income on $28 billion owed to life insurance beneficiaries. New York-based MetLife Inc., the biggest U.S. life insurer, retains about $10 billion and was among carriers subpoenaed by New York Attorney General Andrew Cuomo last week amid a fraud investigation.
MetLife and No. 2 Prudential Financial Inc. are among the firms that administer the accounts, which aren’t backed by the Federal Deposit Insurance Corp. The insurers are paying uncompetitive interest rates and giving clients misleading guarantees, Bloomberg Markets said.
“There needs to be improved disclosure requirements,” said Jane Cline, NAIC president, in an interview on Bloomberg Television today. “We will be ramping up our consumer-education initiatives on this.”
Corporate Accounts
MetLife and Newark, New Jersey-based Prudential keep the death benefits in their corporate accounts and issue IOUs, which they call “checkbooks,” to survivors. The insurers pay interest on the money retained. Carriers profit by investing the funds in bonds and keeping the difference between returns and the interest they credit to the beneficiaries. Use of the word “checkbook” is drawing regulatory scrutiny because the money is not placed in a bank.
“One of the things they’ll be looking at is, ‘Are the ways that they’re calling these products misleading consumers?’” said Eric Nordman, director of regulatory services at NAIC.
MetLife, led by Chief Executive Officer Robert Henrikson, extends coverage to U.S. workers through the Federal Employees Group Life Insurance program. Both the handbook issued to FEGLI policyholders and MetLife’s death-benefit claims form say the insurer will automatically open a “money-market account” for the beneficiary. They omit that MetLife actually doesn’t open any account; it puts the money in its own general account. The company also omits that the funds aren’t at a bank and aren’t FDIC-insured.
Disclosure
“I don’t think that’s what we would consider good disclosure,” Voss said of the MetLife document and the FEGLI handbook. “I think people should have options.”
MetLife’s customer agreement as of June 2010 contradicts the FEGLI assertion and says the program is “not a money market account” and is subject to the insurer’s creditors. Christopher Breslin, a spokesman for MetLife, had no immediate comment.
Prudential discloses that its Alliance Accounts aren’t FDIC-insured, said Bob DeFillippo, a spokesman for the insurer.
Regulators say that retained-asset accounts are protected by regulations that call for other insurers in the same state to cover policyholder claims against a failed insurer. Most states say their plans would cover at least the first $300,000 in promised benefits, according to the National Organization of Life & Health Insurance Guaranty Associations.
‘Secret Profits’
Cuomo said the accounts generate “secret profits” for carriers at the expense of bereaved beneficiaries. Matt Gaul, deputy superintendent of the New York State Insurance Department, questioned whether rules permit carriers to maintain the accounts. The New York regulator, a member of the NAIC, plans to review the legality of the practice.
Defense Secretary Robert Gates has pledged to help the U.S. Department of Veterans Affairs investigate the accounts on behalf of the families of deceased military personnel.
Representative Patrick Murphy, a Pennsylvania Democrat and veteran, called on Prudential to hand over profits on the accounts to beneficiaries. U.S. legislation requiring profit disclosure was introduced on July 30 by Representative Debbie Halvorson, an Illinois Democrat.
Prudential paid survivors like Cindy Lohman, the mother of an Army sergeant who died in Afghanistan, 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings. Lohman told Bloomberg Markets that Prudential’s IOUs were rejected twice by salespeople when she tried to use them to make retail purchases.
Full Access
Insurers market the accounts as a service to allow bereaved beneficiaries time to think about what they’ll do with the payout. Accountholders have full access to their funds and have told MetLife that they “love” the service, Henrikson said on July 30 in a conference call with analysts.
Prudential was subpoenaed in Cuomo’s probe, the attorney general said in a statement. Genworth Financial Inc., Unum Group, New York Life Insurance Co., Northwestern Mutual Life Insurance Co., Guardian Life Insurance Co. of America and an insurer acquired by France’s Axa SA, were also subpoenaed, a person briefed on the demands said last week.
Northern Trust Corp. and Open Solutions Inc. were subpoenaed for records tied to life-insurer clients, a person with knowledge of the demands said today. The companies provide back-office services to insurers.
State regulators will discuss oversight of the accounts at the NAIC’s national meeting in Seattle Aug. 14 to Aug. 17.
To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; David Evans in Los Angeles at davidevans@bloomberg.net; Alexis Leondis in New York aleondis@bloomberg.net.
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