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Life Insurance Company Retained Asset Accounts for Policy Death Benefits

by John Darer CLU ChFC MSSC RSP CLTC

The New York Attorney General is conduction an investigation into how life insurance companies handle death benefits. It has subpoenaed a number of companies including Northwestern Mutual, Prudential Financial, Inc, MetLife, inc., New York Life Insurance Company, Genworth Financial and Unum Group.

The investigation appears to be focused on so-called "retained asset accounts".

When an insured dies, the beneficiaries have a variety of settlement options with the life insurer. Among them they can:

• Take the proceeds as a lump sum, with interest paid from date of death to date of settlement
• They can take proceeds over time as an annuity in any number of payment designs.

As a former Northwestern Mutual agent I vividly recall when the company introduced its Access account in the late 1980s. NML gave a check book to the beneficiary with up to $25,000 against the policy proceeds so that the beneficiary could pay for funeral costs and other immediate expenses without the undue emotional pressure that comes with financial planning during a transition. It buys time.

The American Council on Life Insurers has said that "retained asset accounts provide a significant benefit to family members who are dealing with the emotional loss  of a loved one. Not surprisingly financial matters may not be the first thing on their minds, and retained asset accounts provide a secure place for life insurance policy proceeds.

An August 3, 2010 Milwaukee Journal quotes  Northwestern Mutual spokesperson Jean Towell as saying "

"It's rather perplexing or hard to see how beneficiaries would be harmed in any way by having multiple choices open to them"

The Milwaukee Journal also reported August 3, 2010 that Wisconsin Insurance Department said that it had not received any complaints about retained asset accounts at NML but is reviewing what NML and others tell consumers about their options.

Prudential Financial issued a press release issued on July 29, 2010 that was delivered to its sale force and specifically to members of the structured settlement distribution network on or about August 6, 2010. The gist of the release discusses the vulnerability of beneficiaries to abusive sales tactics and that a special account ("Alliance Account") takes the pressure off beneficiary to do something with the money- which sudden money practitioners know may lead to imprudent financial decisions as well as a timely announcement concerning its talks with the Department of Veterans Affairs in connection with the Servicemembers Group Life Insurance Program that Prudential administers..

Members of the structured settlement profession are cautioned to exercise due care not to circulate the Prudential press release to any prospective purchasers of insurance, including, but not limited to, attorneys who might structure their attorney fees using an annuity or claimants and plaintiffs in personal injury cases. This is because the press release includes the following:

"On the subject of safety, while our Alliance Accounts are not FDIC insured (a fact that is fully disclosed in our material), these accounts are protected by State Guaranty Funds that provide protection of at least $250,000 in most states".

In a January 26, 2009 a published opinion of the New York State Insurance Department obtained by this author, the regulator concluded that a statement that " state insurance guaranty funds provide an additional levels of protection for future structured settlement recipients" which is aimed at New York residents, runs afoul of the Insurance Law". The opinion was sought after a structured settlement trade association brochure, containing the aforementioned language, was published by that association and distributed to its members with intent that its members use it with the public to assuage fears during the 2008-2009 financial crisis. Few wanted to heed this author's pre publication warning that there might be a problem.  Ergo...Download Opinion About Use of LIGCNY in Solicitation of Structured Settlement Annuities 1-26-2009.

The New  York Insurance Law clearly states:

S 7718. Prohibited advertisement of the corporation in sale of
insurance. No person, including an insurer, agent or affiliate of an
insurer and no broker shall make, publish, disseminate, circulate or
place before the public, or cause directly or indirectly, to be made,
published, disseminated, circulated or placed before the public, in any
newspaper, magazine or other publication, or in the form of a notice,
circular, pamphlet, letter or poster, or over any radio station or
television station, or in any other way, any advertisement, announcement
or statement which uses the existence of the corporation for the purpose
of sales, solicitation or inducement to purchase any form of insurance
covered by this article, provided, however, that this section shall not
apply to the corporation or any other entity which does not sell or
solicit insurance, or to prohibit the furnishing of written information
in a form prepared by the corporation and approved by the superintendent
by a member insurer directly to a policyholder in response to a written
request therefor.

Other states have similar prohibitions.

State Guaranty Fund Advertising in Social Media: Structured Settlement Annuities

by John Darer® CLU ChFC MSSC RSP CLTC

The explosion in social media use for business promotion seems to present some potential new compliance challenges for settlement consultants

In response to a posting of a slide show by a structured settlement broker on LinkedIn  promoting the existence of state guaranty funds, this author has written to the New York Insurance Department for an opinion:

"Many insurance agents are asked about LIGCNY (commonly requests simply refer to  "the guaranty fund")  by clients, prospective clients and their lawyers. It is understood that Article 77 prohibits the discussion of even the existence of the guaranty in the solicitation of insurance, which includes structured annuities.

 

Recent history

 

Furthermore in response to an October 2008 request concerning a brochure published by a national structured settlement trade association, that mentioned guaranty funds in general w the OGC opined in January 2009 its use to not be permissible if used in connection with New York annuitants.

 

Subsequent to that opinion, in early 2009  the OGC would not permit relief to a structured settlement firm to list each state guaranty association along with their phone numbers, so that the individuals could contact the associations on their own and obtain answers to their questions directly. The fact that the web posting contained an express disclaimer that the information was "not intended to be used in solicitation of any insurance product in violation of the laws of any state" was not persuasive to the department at the time.

 

The present

 

Now we have become aware of a slide show on the subject of guaranty funds as they relate to structured settlements that is posted on LinkedIn by a non resident agent believed to be soliciting New York lawyers and their clients. Postings on a LinkedIn profile can be seen by any connection, or in many instances even those that are not connections, such as the undersigned.

 

The solicitation on LinkedIn reads as follows:

 

"Check out this great SlideShare presentation on LinkedIn. Click on the link below to view the presentation.

 

http://slidesha.re/bsbrdZ"

 

Note that the slide show discusses insurance guaranty funds, limits concerning such funds and strategies for insurance consumers (in the case of the slide show, structured settlement consumers) and even acknowledges that in most states it is a violation of state insurance codes to use the guaranty association as an inducement.

 

Upon information and belief there are other insurance agents in other states using the existence of a state guaranty fund as part of a solicitation of structured settlement annuities. The request below is simply for New York, but the OGC should be familiar that this is not an isolated case.

 

It is important to note that in a structured settlement transaction the consumer could be someone who has suffered a personal injury or sickness OR the lawyer representing that person (who could receive structured payments from an annuity to pay legal fees)

 

LinkedIn profiles and other social media such as Facebook are increasingly being used to promote business and are considered advertising by the SEC, FINRA and other regulatory authorities.

 

It is important that the OGC issue and publish an opinion because the primary subject matter is of general interest

 

Questions

 

1. Is use of social media for the business of promoting insurance products, insurance companies, agencies or brokers considered advertising under New York insurance law if a Facebook Friend, Linked In, or other social media connection is a New York resident or has an office in New York?

2. May licensed insurance agents or brokers who solicit structured settlement annuities speak or write about guaranty funds in general in connection with the solicitation of annuities to lawyers or their personal injury clients?

3. Does an express disclaimer that the marketing piece is ""it's not a reason to buy insurance" or a recitation of Article 7718 (placed) on the relevant media hold any more weight in 2010 than it did in 2009?

4. Given the assumption that the Department recognizes that agents and brokers are likely to receive requests about "the guaranty fund", is there an acceptable way under the law to answer the questions of clients and prospects on the subject that does not run afoul of Article 7718?"

5. If such slide show is used in a presentation to a group of lawyers (who are prospects for annuities used to fund attorney fees) does that use violate New York law?

Rhetorical Question

Do current state insurance laws around the country adequately cover the new possibilities created by the social media phenomenon?

Example:  Insurance prospect from 3,000 miles away sees agent's slide show on "Guaranty Funds" which agent posted on his Facebook page. A friend of the agent clicks the Facebook "Like button" prompting a friend's friend to look at it. That person is impressed, calls the agent, relies on the solicitation and advice provided in that slide show and decides to do business with the agent. The insurance laws of the agent's "Facebook friend" and the "Facebook friend's friend" prohibit the advertising of the state guaranty fund.

This author would like to thank Milwaukee structured settlement consultant William Fazio, for posting the slide show in question (below) and inspiring the important questions being asked here today.

Those Who Do What Is Prohibited by Article 77 of New York Insurance Law

Despite the clarity of New York State Insurance Law I have been made aware, from plaintiffs , that on multiple occasions structured settlement brokers  are doing that which is is expressly prohibited by Article 77. What is worse and what regulators need to be made aware of is that this is occurring when lower rated companies are being pushed. This is exactly the reason why such an advertising prohibition exists in New York and most other states. Last January, this author obtained a legal opinion from the New York State Insurance Department to answer questions raised concerning an NSSTA brochure which were prepared by NSSTA for its members to use in the solicitation of insurance.

I don't know whether or not the property and casualty companies retaining some of the brokers in question know of the ILLEGAL sales pitch but I can assure you the directors of those programs will be informed. I don't see how they can afford having these people on their approved lists, representing their companies,   potentially exposing their companies.

 

 

 

 

Are North Carolina Insurance Agents Violating The Law, to Sell Structured Settlements?

by John Darer® CLU ChFC MSSC RSP CLTC

In an August 30, 2009 post I discussed a quote appearing in the North Carolina Lawyers Weekly's August 17, 2009  report concerning structured settlement annuities.

In the August 17, 2009 article R. James Lore, a Cary, NC attorney is quoted as saying that "many of the structured settlement companies were selling these annuities and telling people they had coverage from the guaranty fund, and meanwhile, the guaranty fund was saying there was no coverage here.

I asked at the time "Who are these structured settlement companies? If what Lore said is true, the behavior of these "structured settlement companies" appears to violate the following North Carolina statute":

N.C. GS 58-62-96 (a) No person shall make, publish, disseminate, circulate, or place before the public, or cause directly or indirectly to be made, published, disseminated, circulated, or placed before the public, in any newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any oral or written advertisement, announcement, or statement that uses the existence of the Association or this Article for the purpose of sale or solicitation of or inducement to purchase any kind of insurance covered by this Article.

North Carolina Life & Health Guaranty Association prohibition on advertising  (N.C. GS 58-62-96)

Despite this prohibition, It has come to my attention that financial advisor Patrick Munro of Northstar Financial Advisors Wilmington, NC discusses the state guaranty funds in a video posted on the Internet entitled " Why Invest in Annuities" (below)  According to his biography he solicits business in North Carolina and South Carolina. He shows an active life insurance license in both states North Carolina.

I target Mr. Munro because he also has a video about "structured settlement annuity".

 

Let's set aside the disturbingly eerie similarity to the cadence of Ben Stein (i.e "Bueller?, Bueller? Someone? Anyone?) and address why some of what Patrick Munro states is inaccurate.

Munro inaccurately claims the Insurance company will invest your money under government guidelines so you cannot lose principal

Comments:

1. An annuity is a contract which is backed by the full faith and credit of the annuity issuing life insurance company.
2. Despite recent calls for federal regulation, annuity issuing life insurance companies are not federally regulated. They are regulated by each state in which they do business. An explicit liability reserve is established, pursuant to statutory accounting,  for all invested asset classes of the insurer with the aim of providing protection to a company's surplus against potential losses in equities and credit markets. Realized or unrealized losses are credited or debited against the reserve. In 1991 the old Mandatory Securities Valuation Reserve was replaced with the Asset Valuation Reserve (AVR) which added mortgage loss reserves to the formula. 
3. A classic recent example is the effect of guarantees on variable annuities that were so popular but proved to be an albatross around insurers necks during the recent financial crisis. Actuaries priced these under a set of assumptions for a worst case scenario that were exceeded by the financial conditions which ensued. Fortunately the companies only saw ratings drops.