FDIC Challenges Insurance Companies In Retained Asset Accounts Dispute

We’ve recently noted that some officials are concerned that insurance companies are holding money in non-FDIC insured accounts that they owe on life insurance policies issued to members of the military. Now, FDIC Chair Sheila C. Bair has sent a letter to the National Association of Insurance Commissioners (“NAIC”) regarding the FDIC's concerns about the adequacy of disclosures provided by insurance companies when distributing insurance proceeds through these so-called Retained Asset Accounts (“RAAs”) and potential consumer confusion over whether such accounts are insured by the FDIC.

She writes:
 
“Press reports indicate that the NAIC is revisiting the disclosure requirements associated with RAAs.  We welcome this initiative.  We are reviewing these issues ourselves, in light of the statutory prohibition against any person misrepresenting federal deposit insurance coverage.  Based on our Legal Counsel’s initial review of sample documentation from an insurance company to a beneficiary, we believe that consumers may mistakenly conclude that the RAAs are products offered by insured depository institutions and, further, that the RAAs are FDIC-insured accounts.
 
“Based on the documents that we have seen, we feel strongly that life insurers using RAAs should explain that these accounts are FDIC insured, and that fact should be clearly and conspicuously disclosed not only to policyholders, but also to their beneficiaries at the time of the policyholder’s death.  Because banks and/or their affiliates may provide administrative services in connection with RAAs, the insurance company must take care to avoid implying in any way that these accounts are in fact offered by FDIC-insured depository institutions or are FDIC-insured.
 
“We understand from conversations with NAJC staff and NAIC public statements that RAAs may be backed by state guaranty finds.  If that is the case, it would seem disclosure and explanation of these guarantees to beneficiaries and policyholders would be appropriate.  But we believe it is important to avoid public confusion and provide appropriate differentiation between these guarantees and FDIC coverage.”
 
The FDIC also has some advice for insured depository institutions that participate in any function relating to RAAs, saying that they “must be vigilant in minimizing consumer confusion about FDIC insurance coverage.” These participating banks, according to the FDIC, “should work with the insurance companies offering RAAs to make sure that all documents provided to consumers appropriately reflect the participating banks' role in the transactions and disclose to policyholders and beneficiaries whether or not the RAAs are insured by the FDIC.”
 
Our prior posts on this issue are available at http://www.financialfraudlaw.com/lawblog/does-life-insurance-industry-defraud-military-families/1287 and http://www.financialfraudlaw.com/lawblog/schumer-propose-end-%E2%80%98insurance-company-payout-schemes%E2%80%99-military/1294.