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Report from the NAIC Meeting

The National Association of Insurance Commissioners (NAIC) met in Seattle from August 13-17.  I was on hand for most of this meeting, and here’s a quick look at some of the key developments:

  • Health Care Insurance – This was the dominant theme of the meeting since President Obama is looking to the NAIC and state regulators to develop loss ratio information that will be used under the new federal health insurance reform legislation. Protesters carrying signs saying “Stop the lobbyist pandemic” interrupted several sessions on this topic. They believe that industry lobbyists are exerting too much pressure on regulators to keep health insurance loss projections high in an effort to ensure profitable returns for their employers. It’s clear that regulators are under enormous pressure to comply with the provisions of the new federal law and to secure their place in the increasingly complex regulatory scheme that will oversee implementation of the law over the next several years.
  • Retained Asset Accounts – No doubt you’ve read more than a few news stories, including those we put in NFCA’s “Weekly Headlines,” about the controversy surrounding Retained Asset Accounts. Many life insurers use RAAs as an alternative way of paying death benefits. Instead of issuing a check for the full amount of the benefit, they will deposit the funds in an interest earning (but not FDIC-insured) account and provide the beneficiary with a checkbook so they can access the funds as needed. Some insurers believe that beneficiaries may be overwhelmed by the need to make difficult investment decisions with the proceeds from a life insurance policy at what could be an emotionally difficult time for them and that RAAs allow them the time needed to more thoroughly address their needs without artificial time constraints. Of course, they can access the entire benefit simply by writing a check for the full amount in the RAA. Some ambitious public policymakers and reporters think they smell a rat in the RAA process and are calling some major insurers on the carpet, alleging that they are denying beneficiaries access to their life insurance benefits and continuing to earn investment income for the company while the funds sit in the RAAs. No matter how I look at this, it appears to be much ado over nothing. Public policymakers may ultimately end up banning companies from using RAAs and get some mileage for being “consumer advocates” in the media. But as far as I can tell, no one has been hurt by this practice, and it may have made life easier for some people who may simply not have known what to do with a significant life amount of cash from a life insurance benefit in the days after the death of a loved one.
  • Fraternal RBC Model Law – The NAIC’s Capital Adequacy Task Force addressed the Fraternal RBC Model Law during its meeting and acknowledged that little work had been done on this project. I addressed the group and indicated that NFCA had been working with individual states to enact RBC laws with significant success, and that additional states were likely to enact such laws or regulations in 2011. I indicated that the progress being made by individual states may make development of NAIC model a moot point. The members of the Task Force seemed to agree with me and suggested that a poll of state regulators be taken prior to the October NAIC meeting to determine the need for such a model law. In my opinion, this project is going nowhere fast and our efforts to enact such laws on a state-by-state basis are the correct public policy strategy.

I welcome your thoughts on any of the above items.  Post your comments here…

One Response

  1. Joe – You are absolutely right about the RAA controversy being much ado about nothing, at least with respect to RAAs specifically. Perhaps the only potentially valid concern is that disclosure needs to be shored up here and there.
    The scary thing about this issue though, is that something so simple, that is clearly positive for consumers, and at the very least innocuous, can be so successfully attacked. If critics can successfully get regulators to regulate (with a blunt instrument) the rates of return offered by these positive and simple benefits, I shudder to think where they will go next.
    It really hits the mark on how important the NFCA’s public image/knowledge campaigns with regulators and the public really are(and how the entire industry should be doing the same). We all need to be extremely concerned with the unwarranted demonizing that takes place at every turn. Nothing good is going to come of that.

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