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In Defense of Retained-Asset Accounts: Insurers Have Their Say

Source: A.M. Best Company, Inc.

Posted on 17 Aug 2010

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Members of the insurance industry defended the longstanding practice of retained-asset accounts in a lively and often heated debate at the National Association of Insurance Commissioners summer meeting, currently underway in Seattle.

In a new working group at the meeting, industry representatives defended the practice of retained-asset accounts. Todd Katz, executive vice president for MetLife Inc.'s U.S. business, said he welcomed the chance to clear up the "sensationalized, inaccurate and misleading media reports" on the "common industry practice." Katz argued that the accounts are "well-regulated" and alleviate pressure on life insurance recipients. "It allows beneficiaries time," he said.

As for the interest the accounts pay, he said it's significantly higher than other liquid, interest-bearing accounts and charges no regular fees. He also pointed out that financial information on these accounts has been publicly available. "Nothing here is secret," he said.

And answering critics who point out the accounts are not FDIC insured, Bernard Winograd, chief operating officer for Prudential Financial Inc.'s U.S. business, said that "is made clear in disclosures." He pointed out his company's beneficiaries with these accounts receive higher interest rates than bank customers using money market accounts.

Some critics have expressed worry that the lack of FDIC backing may mean these accounts could be drained in the event of a company failure, but Peter G. Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations, said that state guaranty funds have backed up such accounts and would in the future.

Gallanis also pointed out that the NAIC has already examined these accounts. In 1995, the organization released a model bulletin on the handling of the accounts, which it suggested could be open to abuse.

"My own intuition was that I would take a lump sum," said Commissioner Joel Ario of Pennsylvania. He had said he was initially considering encouraging his state to require a lump-sum defaul. But he had his staff examine the issue, and they changed his mind, he said. "They think the RAA is a better default … so I'm comfortable moving in exactly that direction."

Retained-asset accounts can be the best option for people dealing with "what might be the largest financial decision of their lives at the most stressful period in their lives," said Paul Graham, chief actuary with the American Council of Life Insurers. "And it gives them the benefit of time. They can use a check immediately, if they so choose. … They can wait as long as they need until they feel comfortable to make that decision."