State Orders Life Insurers To Disclose Payout Policies
The Record (Hackensack, NJ)
October 1, 2010
Oct. 01--Life insurers' programs that allow the companies to hold onto and profit from the undistributed portion of death benefits as they are paid out piecemeal to beneficiaries will no longer be exempt from state regulatory review.
New Jersey Department of Banking and Insurance Commissioner Thomas Considine said Thursday he ordered insurance companies to send the department internal documents related to so-called retained asset accounts. He also ordered them to provide policyholders and beneficiaries with "easy-to-understand" disclosures of how the accounts work.
"We want to make sure no fly-by-night schemers are out there trying to rip off New Jersey residents," Considine said in a phone interview.
The accounts, which many insurers offer, drew scrutiny from federal and state authorities after Bloomberg Markets magazine reported in July that Newark-based Prudential Financial Inc. offered the accounts to beneficiaries of fallen military service members, and when the insurer paid a claim, beneficiaries received a checkbook in the mail, not a check, and that the money was kept in the life insurer's general fund.
The state order comes after the Veterans Affairs Department announced earlier this month it will require Prudential to make changes so beneficiaries will better understand what they are getting.
Considine said he was surprised to learn that insurance regulators in New Jersey and most other states do not keep watch on retained asset account settlement practices.
The state will require that insurers disclose interest rates and fees associated with the accounts and the guaranty limit, which in New Jersey is $500,000. The disclosure requirement will take effect in about four months and insurers were given five months to provide internal documents to the department.
"In all instances we fully cooperate," Bob DeFillippo, a Prudential spokesman, said of state's new rules.
"We fully support measures that help beneficiaries understand how the RAA [retained asset account] provides a safe, efficient and secure way to receive a settlement," DeFillippo said.
Considine said the accounts need to be more transparent but they are "a valuable option for the consumer," because "a checkbook is more familiar than a dauntingly large check," and the interest rate typically is "higher than a traditional demand account."
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