Regulator seeks bigger backstop for retained-asset accounts

New Jersey Banking and Insurance Commissioner Thomas B. Considine yesterday called for an expansion of state guaranty fund protection on retained-asset accounts.
The Garden State’s insurance regulator is proposing a change to the National Association of Insurance Commissioners’ model guaranty law. The amendment would allow guaranty funds to provide unlimited coverage over retained-asset accounts — those accounts in which insurers hold life insurance proceeds — in the case of certain insolvencies.
Currently, most states’ guaranty funds will cover at least $300,000 in life insurance death benefits. In New Jersey, the limit is $500,000.
But under Mr. Considine’s proposal, if an insurer is solvent at the time an insured person dies —and the beneficiary elects the RAA option —the account receives unlimited coverage in the event the insurer goes bust.
“If the company goes insolvent, beneficiaries have the benefit of their selection,” Mr. Considine said. He said he was unaware of an insurance regulator ever proposing such an idea.
Mr. Considine made the announcement a week after ordering enhanced disclosures on retained-asset accounts, including language clarifying that state guaranty funds — not the Federal Deposit Insurance Corp. — cover RAAs.
Insurers and guaranty systems won’t be affected much if state guaranty fund coverage is expanded, Mr. Considine said.
“The reason we think the impact on any insurer or guaranty system is so negligible is because money leaves RAAs at a rapid clip,” he said. He estimated that within a year of an insured person’s death, 60% of the funds are pulled from the retained-asset accounts.
The proposal to change the model act would have to go through the NAIC’s financial commission committee and eventually to a vote by the entire membership.
Connecticut insurance commissioner Thomas R. Sullivan, chairman of the life and annuities committee at the NAIC, said that Mr. Considine’s proposal is “very pro-consumer.”
“I would support it,” he said. “The broader the coverage, the more the consumers benefit: They have backstops in place in the event of an insolvency.”
Mr. Sullivan said he expects the measure to go largely unopposed, even by the insurance industry. “They’re supporters of the guaranty funds’ structure, and the only time it would be relevant is if there’s an insolvency.”
“We fully support measures that help beneficiaries understand RAAs and how they provide a safe, efficient and secure way to receive a settlement,” said Jack Dolan, spokesman for the American Council of Life Insurers. “In considering any proposal, we must keep in mind what is fair and equitable to all policyholders.”