The start of this year’s legislative sessions has certainly provided a forum for introduced bills addressing the use of retained asset accounts by insurers as a settlement option. Just as we saw last year, states are continuing to evaluate their current regulatory requirements applicable to this settlement option through either legislative or regulatory approaches, or both. Taking a quick look at some of these initiatives can provide some insight into some similarities and differences among the states so far this year.
California has two bills introduced in this session, SB 713 and SB 599, which seek to impose requirements around the use of this settlement option. SB 713 recognizes the use of retained asset accounts and seeks to require insurers to provide written disclosures to life insurance beneficiaries before a retained asset account is selected or established as the means of benefit payment. Similar to many other states already establishing consumer protections, an insurer that chooses to settle life insurance benefits through a retained asset account would need to provide the beneficiary with a supplemental contract which discloses the rights of the beneficiary and the obligations of the insurer under the supplemental contract. SB 599 would prohibit an individual or group life insurance from containing a provision that requires the beneficiary to take life insurance proceeds in the form of a retained asset account or any arrangement other than a lump-sum payment. However, it also provides for life insurance settlement options other than lump-sum payments that would be required to conform to specified conditions. The bill would also authorize the Insurance Commissioner to adopt regulations specifying requirements for the supplementary agreements and written disclosures.
Maryland’s SB 217 seeks to prohibit an insurer from using retained asset accounts as a settlement option for life insurance policies or annuity contracts except under certain circumstances. From a regulatory perspective, this state had already taken steps this year to revise their previously adopted retained asset account regulation effective Feb. 21st, creating an exception in the disclosure requirements for beneficiaries that opt for a fast track settlement by check. Indiana’s SB 360, Pennsylvania’s HB 718, and Virginia’s HB 1458 all seek to establish disclosure requirements for insurers opting to use retained asset accounts as a settlement option.
Nevada’s recently proposed AB 274 notes that, under existing law, an insurer is required to pay the proceeds of any benefit under a policy of life insurance or a policy of group life insurance within 30 days after the insured’s death, with interest on the proceeds from the date of death to the date of payment for untimely payments. This bill would also require an insurer to pay the proceeds of any benefit under a policy of life insurance in the form of a lump-sum payment unless the beneficiary agrees to an alternate form. If a retained asset account were to be used, insurers would be prohibited from offering to pay the proceeds in the form of a retained asset account unless certain information is disclosed to the beneficiary.
New York has two introduced bills, AB 683 and SB 504, which propose to prohibit the use of retained asset accounts by amending Section 3213 of the Insurance Code. That section would then include the following: “Where the proceeds of a policy of life insurance delivered or issued for delivery in this state are payable, according to its terms, such proceeds shall not be held in a retained-asset account held by the insurer. Mississippi also had proposed a similar prohibition in its SB 2889 this session, but that measure died in committee.
Oregon’s House Bill 2480 would require insurers to offer life insurance beneficiaries the option of lump sum payment, along with disclosures to beneficiaries choosing to deposit amount of death benefit in the insurer’s retained asset account. It also includes a reporting requirement, with specific information to be provided to the Department of Consumer and Business and allows for a private right of action against insurers by beneficiaries.
Many other states have looked to the NAIC’s sample bulletin on retained asset accounts and have issued bulletins based on its suggested provisions and disclosures. Among those states are Connecticut, issuing Bulletin IC-27 on Feb. 3rd and Iowa, issuing Bulletin 11-01 on Feb. 8, with both states establishing disclosure standards. And while life insurers are not required to file their proposed disclosure forms with the Iowa Insurance Division, they are advised by the Division that compliance with its bulletin is expected for all claims made on or after May 1, 2011. Maine issued Bulletin 376 on January 24th establishing disclosure standards regarding payment of life insurance benefits by means of retained asset accounts. And Ohio, in a similar fashion, issued Bulletin 2011-01 on January 3rd.
We are not quite at the end of the first quarter of 2011, yet there continues to be a focused interest on this settlement option.
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Kathy,
Apart from the whole RAA aspect of California’s new legislation, do you think new statute section 10170(f) requires insurers claims forms to list all contractual settlement options? This would be very difficult for a lot of companies with business on the books for many many years or companies who acquire blocks of business.
Appreciate any insight you might provide.
Jim