Posted on 23 Aug 2010
In her home state, Kentucky Insurance Commissioner Sharon Clark issued a bulletin to bar insurers from automatically retaining the death benefits without an affirmative "opt-in" from beneficiaries. The bulletin is based on both state law and a 1995 NAIC model bulletin on the handling of the accounts, which it suggested could be open to abuse.
Clark said she issued the bulletin in the interest of "full transparency" while her office considers formal regulations. The office has received zero complaints about the practice from beneficiaries, she said.
"I always think it's important to be proactive and to have clear direction for both insurers and consumers," Clark said.
At the National Association of Insurance Commissioner's recent inaugural session at the NAIC's summer national meeting in Seattle, industry representatives defended the long-standing practice as a benefit to consumers and decried what they called inaccurate and sensationalistic media reports.
In California, Assemblyman Dave Jones introduced legislation that would require beneficiaries to consent to a retained asset account instead of receiving a lump sum payment; mandate that families receive all the interest, less administrative costs; and require insurers to disclose that these accounts are not insured by the Federal Deposit Insurance Corporation. Jones, D-Sacramento, is the Democratic nominee for insurance commissioner.
"Grieving families sometimes have a hard time sorting through all the information they receive about insurance benefits," Jones said. "I am proud to stand with veterans today and call for regulation of these deceptive practices."
In response to concerns that the lack of FDIC backing may mean these accounts could be drained in the event of a company failure, Peter G. Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations, said in Seattle that state guaranty funds have backed up such accounts and would in the future.