On September 8, 2010, the National Conference of Insurance Legislators ("NCOIL") Life Insurance & Financial Planning Committee (the "NCOIL Committee") discussed the August 12th draft of the Beneficiaries' Bill of Rights, which would regulate retained asset accounts ("RAAs"). The Beneficiaries' Bill of Rights was developed and sponsored by NCOIL President, Rep. Robert Damron (KY) and Rep. Brian Kennedy (RI) to provide guidance for the states that do not currently regulate RAAs.
During the September 8th call, the NCOIL Committee explained that its greatest concern is whether the beneficiaries are choosing to have their death benefits transferred to RAAs. One legislative member commented that if RAAs were a default option, then the insurer should be subject to a fiduciary duty with respect to the amounts held in the RAA, as would be the case if the beneficiary gave a financial advisor the death benefits to manage. The NCOIL Committee also raised concerns about the large dollar amount of funds currently held in RAAs and profits realized by insurers from amounts held in RAAs.
Connecticut Insurance Commissioner Thomas Sullivan, New Hampshire Insurance Commissioner Roger Sevigny, and Tim Mullen of the NAIC reported on the work of the Retained Asset Accounts Working Group of the Life Insurance and Annuities Committee and the Market Regulation and Consumer Affairs Committee (the "RAA Working Group"). The RAA Working Group plans to provide its policy recommendations at the Fall 2010 NAIC National Meeting. The RAA Working Group is currently developing questions to gather information from insurers on RAAs. Insurers will be asked to provide responses to those questions by the end of September and, in early October, the RAA Working Group intends to hold a call to discuss the findings. Commissioners Sullivan and Sevigny cautioned against development of model legislation without a sufficient understanding of RAAs. Other commentators also discussed the need to gather more facts before model legislation is crafted. In their written comments, several insurance commissioners expressed their views that RAAs afford beneficiaries time to make decisions, which is a useful benefit, and noted that few, if any, complaints had been received about RAAs.
Several members of the NCOIL Committee expressed their desire to work with the insurance commissioners. However, they also believed that there is a need to continue moving forward in drafting the model legislation despite the RAA Working Group efforts.
During the call, the NCOIL Committee reviewed and made changes to the first four sections of the August 12th draft of the Beneficiaries' Bill of Rights. The changes made included:
- Expanding Section 2 ("Purpose") to cover any method of payment for life insurance death benefits.
- Eliminating Section 3 ("Applicability"), as it was found to be duplicative with Section 2.
- Changing the definition of the term "Policy" to make clear that the model legislation is intended to only address life insurance contract death benefits and not death benefits paid under other forms of insurance. In addition, references to annuity contracts throughout the model legislation would be deleted.
- Revising the definition of the term "Retained Asset Account" to clarify that it applies to the deposits of death benefits into a "transaction account where the proceeds are retained by the insurer, pursuant to a supplementary contract."
The NCOIL Committee received comments on Section 5, which would forbid insurers from using RAAs as a default method of paying death benefits and would require the beneficiary to consent in writing to the transfer of death benefits to an RAA . The NCOIL Committee acknowledged that this would be the most contentious issue addressed by the model legislation. Several members of industry explained that the death benefits would be transferred to an RAA by default only if the beneficiary failed to select the method of payment for the death benefit on the claim form. They also described their claim procedures. Several NCOIL Committee members requested copies of insurers' RAA materials for further consideration. No conclusion was reached by the NCOIL Committee as to whether affirmative consent would be required. Rather, the NCOIL Committee agreed to further discuss Section 5 and the remaining provisions of the August 12th draft of the Beneficiaries' Bill of Rights at its next conference call, which is proposed for next week.