FDIC Reviews Insurers' Retained Death Benefits
Chairman of the U.S. Federal Deposit Insurance Corp.
Brendan Hoffman/Bloomberg
Chairman of the U.S. Federal Deposit Insurance Corp. Sheila Bair.
Chairman of the U.S. Federal Deposit Insurance Corp. Sheila Bair. Photographer: Brendan Hoffman/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)
The Federal Deposit Insurance Corp. is reviewing whether life insurers misled customers about retained death benefits, and urged companies to clearly disclose that the funds aren’t guaranteed by the U.S. government.
Chairman Sheila Bair said an initial review indicates consumers may mistakenly believe the accounts are insured by the FDIC, according to a letter to the National Association of Insurance Commissioners. It is illegal to misrepresent FDIC coverage, Bair said in the letter dated Aug. 5 and posted on the agency’s website yesterday.
“I am writing to express our serious concerns,” Bair says in the letter. Life insurers “should explain that these accounts are not FDIC-insured, and that fact should be clearly and conspicuously disclosed not only to policyholders, but also to their beneficiaries at the time of the policyholder’s death.”
U.S. life insurers have drawn fire from state and national elected officials since Bloomberg Markets magazine reported last month that more than 100 carriers profit by holding and investing $28 billion owed to life-insurance beneficiaries. Retained-asset accounts are backstopped by insurer guaranty associations in the event a carrier fails, according to MetLife Inc., the biggest U.S. life insurer, and the National Organization of Life & Health Insurance Guaranty Associations.
“If that is the case, it would seem disclosure and explanation of these guarantees to beneficiaries and policyholders would be appropriate,” Bair wrote. “We believe it is important to avoid public confusion.”
Investigations
New York Attorney General Andrew Cuomo opened a fraud investigation into the accounts, and Georgia’s insurance commissioner is reviewing the matter. Benefits retained from soldiers are the subject of probes by the U.S. Department of Veterans Affairs and the House Oversight and Government Reform Committee.
“We have very serious concerns about a practice that the consumer may not understand, that may not be fully disclosed,” John Oxendine, the Georgia regulator, said yesterday. “I have ordered a full-blown market-conduct exam” of MetLife and Prudential Financial Inc., Oxendine said.
Life insurers settle death claims by issuing IOUs. Beneficiaries are told they hold interest-bearing retained-asset accounts, while insurers hold the funds and accrue investment income. MetLife in New York and Newark, New Jersey-based Prudential are cooperating with Georgia’s investigation, spokesmen for the companies said.
House Committee
Jane Cline, NAIC’s president, said in a Bloomberg Television interview last week that insurers must improve disclosure about the accounts. The House Oversight and Government Reform Committee plans to investigate insurance benefits for U.S. soldiers, Representative Edolphus Towns, the New York Democrat and committee chairman, said yesterday.
The American Council of Life Insurers, a Washington-based industry lobby, said last week it was “very proud” of the accounts, because they give the bereaved time to decide what to do with the money.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net
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