Kentucky Prohibits Insurers From Retaining Survivors' Cash Without Consent
Kentucky Bans Insurers From Keeping Cash Without Consent
David Evans/Bloomberg
A sample "check" for a Prudential retained asset account.
A sample "check" for a Prudential retained asset account. Photographer: David Evans/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)
Kentucky’s insurance regulator has prohibited life insurers in the state from automatically retaining death benefits in their corporate general funds and issuing so-called checkbooks to the survivors.
“We believe in consumers having choices,” said Kentucky Insurance Commissioner Sharon Clark in an interview at the National Association of Insurance Commissioners meeting in Seattle yesterday. “We’re trying to be as pro-active as we can.”
Regulators are under pressure to change industry practices after Bloomberg Markets magazine reported in July that carriers profit by holding and investing $28 billion owed to beneficiaries. Retained-asset accounts allow insurers to keep the proceeds of a life insurance policy in their general corporate accounts, earning investment income, while providing the beneficiary with a checkbook account that’s not insured by the Federal Deposit Insurance Corp.
Clark issued the advisory opinion in Kentucky on Aug. 13. Under it, insurance companies also are required to provide a new contract with complete disclosure on retained-asset accounts. Unless beneficiaries agree to that contract, payment must be made by check, rather than by setting up a retained-asset account, she said.
Uniform Disclosure
Clark said her office will consider it to be an “unfair claims settlement practice” for an insurer to place life insurance proceeds in a retained-asset account without a beneficiary’s consent. Bloomberg reported this is a common practice among life insurers, including the nation’s largest, MetLife Inc. and Prudential Financial Inc.
The NAIC on Aug. 6 formed a special task force to consider retained-asset accounts. The joint working group, which includes representatives of the NAIC’s life insurance and annuities committee and the market regulation and consumer affairs committee, will meet today.
“If anything comes out of [today’s] meeting, my best guess is it would be a recommendation for a uniform disclosure agreement regarding the options for consumers,” said Brian Kreger, an insurance lawyer and founding partner of Kreger Beeghly PLLC in Seattle.
Kentucky’s Clark said she’s concerned that she doesn’t know how much beneficiary money is held in the state by life insurers. She said she’s begun talking to state legislators about enacting a law requiring insurers to disclose that data.
Lump-Sum Payments
A group of state lawmakers, the National Conference of Insurance Legislators, announced an “opt-in proposal” on Aug. 12 that would require insurers to provide beneficiaries with immediate lump-sum payments. Insurers would be permitted to hold funds in retained-asset accounts only if clients specifically requested them.
The proposed legislation would protect consumers, said Robert Damron, a Kentucky representative and president of the lawmaker group.
“If the states don’t act, the feds will,” Damron said in an interview at the NAIC conference yesterday. “I don’t think any of us want the federal government engaged in regulating these insurance contracts.”
Prudential said the accounts help the “vast majority” of survivors who get them. They “provide a place for beneficiaries to safely keep their money while they decide what do with it,” Newark, New Jersey-based Prudential said in an Aug. 12 statement.
Prudential said it tells customers that the accounts aren’t insured by the FDIC and that state guaranty funds back the accounts for at least $250,000. The accounts “are backed by the financial strength of Prudential,” the company said.
Robert Henrikson, chief executive officer of No. 1 MetLife, said July 30 in a conference call that accountholders “love” the service. The New York-based insurer retains about $10 billion in death benefits on behalf of survivors.
To contact the reporters on this story: David Evans in Los Angeles at davidevans@bloomberg.net; Hui-yong Yu in Seattle at hyu@bloomberg.net
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