Over the past few months, Keane has blogged about some of the issues that have recently come to light in the life insurance industry – and how many life insurance companies have found themselves under scrutiny from a beneficiary communication and unclaimed property perspective. As a result, the life insurance industry is starting to see some regulatory changes that will impact the way they communicate with policyholders and beneficiaries. In fact, just last week, California passed two laws intended to tighten consumer protections on retained asset accounts (RAAs).
One of the laws, S.B. 599, repeals the current law that had previously allowed insurers to require beneficiaries to receive their life insurance proceeds only through an RAA. The new law now requires life insurers to obtain a beneficiary’s written declaration as to how he/she wants to receive a benefit payment. California State Insurance Commissioner Dave Jones asked the state legislature to pass this law because of the issues RAA accounts can present. Retained asset accounts appear similar to a checking account, however retailers do not readily accept RAA drafts, and some RAAs have minimum draft requirements. In addition, RAAs are not protected by federal deposit insurance, making the accounts not only hard to access, but also not ideal from a consumer perspective.
Under the new law, insurers can also set up an RAA if the beneficiary fails to make a decision and if the declaration form clearly disclosed that the default benefits payment mechanism was an RAA.
The second law, S.B. 713, requires insurers to make specific disclosures to beneficiaries of life insurance policies regarding retained asset accounts before the funds are placed into those accounts. This law is based on the National Association of Insurance Commissioners (NAIC) model bulletin drafted last year. Insurers will now need to inform beneficiaries of how they can access the entire account amount, what the interest rate is, how the account funds are guaranteed, and how they can learn about their guaranteed limits of coverage so that they can make an informed decision about the RAA option. Also, if a beneficiary chooses to receive their benefits through an retained asset account, the bill requires insurers to issue a supplemental contract detailing beneficiaries’ rights and the insurer’s obligations relating to these accounts.
Both laws go into effect January 1, 2012. For more information, please click here.