The agency says some beneficiaries may mistakenly believe the accounts are insured by the U.S. government
The Federal Deposit Insurance Corp. is reviewing whether life insurers misled customers about retained death benefits, and urged companies to clearly disclose that the funds aren't guaranteed by the U.S. government.
Chairman Sheila Bair said an initial review indicates consumers may mistakenly believe the accounts are insured by the FDIC, according to a letter to the National Association of Insurance Commissioners. It is illegal to misrepresent FDIC coverage, Bair said in the letter dated Aug. 5 and posted on the agency's website yesterday.
“I am writing to express our serious concerns,” Bair says in the letter. Life insurers “should explain that these accounts are not 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.”
U.S. life insurers have drawn fire from state and national elected officials since Bloomberg Markets magazine reported last month that more than 100 carriers profit by holding and investing $28 billion owed to life-insurance beneficiaries. Retained-asset accounts are backstopped by insurer guaranty associations in the event a carrier fails, according to MetLife Inc., the biggest U.S. life insurer, and the National Organization of Life & Health Insurance Guaranty Associations.
“If that is the case, it would seem disclosure and explanation of these guarantees to beneficiaries and policyholders would be appropriate,” Bair wrote. “We believe it is important to avoid public confusion.”
Investigations
New York Attorney General Andrew Cuomo opened a fraud investigation into the accounts, and Georgia's insurance commissioner is reviewing the matter. Benefits retained from soldiers are the subject of probes by the U.S. Department of Veterans Affairs and the House Oversight and Government Reform Committee.
Jane Cline, NAIC's president, said in a Bloomberg Television interview last week that insurers must improve disclosure about the accounts.
The American Council of Life Insurers, a Washington-based industry lobby, said last week it was “very proud” of the accounts, because they give the bereaved time to decide what to do with the money.
