Regulatory Focus on Use of Retained Asset Accounts

The use of retained asset accounts by some life insurers was a key topic of debate at a quarterly meeting of the National Association of Insurance Commissioners (NAIC) in Seattle yesterday.

The NAIC recently created a new working group to review the use of retained asset accounts by insurers and to study whether appropriate consumer protections are in place.

It has also issued a consumer alert on retained asset accounts explaining what consumers need to know about life insurance benefit payment options.

The increased regulatory scrutiny follows a Bloomberg markets magazine article that focused on how the industry practice affected the beneficiary of a $400,000 life insurance policy – the mother of an army sergeant killed in Afghanistan.

A weekend column in the Wall Street Journal by Leslie Scism and Erik Holm poses the question: are life insurers playing fair?

In a Q&A format, the article explains how retained asset accounts work and attempts to sort out whether beneficiaries understand their payout options when an insured person dies.

I.I.I. chief economist and senior vice president Dr. Steven Weisbart recently noted that the use of retained asset accounts is a life insurance industry practice that has served beneficiaries well for a quarter century and has generated few if any complaints to state insurance departments.

For more information, check out the I.I.I. fact sheet on retained asset accounts.

JetBlue Incident and Workplace Stress

It’s Friday and if you haven’t already activated the emergency slide, grabbed a couple of beers and departed the office, there are a couple of matters arising from the actions of JetBlue flight attendant Steven Slater that demand our attention.

First up, Crain’s New York Business reminds us that while Mr. Slater’s actions were extreme, the incident is by no means isolated. In fact industry experts say that more incidents like this can be expected to occur.

The article quotes Alan Sirowitz, director of clinical services at JFK Advanced Medical, a health center at the airport, who told Crain’s:

“There are more people reacting to anger triggers now than ever before, in every part of the airline industry. There are people who intentionally annoy flight attendants, and have an attitude of taking advantage of them because of their own stress factors.†

Good point and it’s not just the airline industry that has stressed employees. Stress is a growing and costly problem in many industry sectors today, exacerbated by tough economic times.

According to the National Institute for Occupational Safety and Health (NIOSH), about one-third of workers report high levels of stress and high levels of stress are associated with substantial increases in health service utilization.

In addition, periods of disability due to job stress tend to be much longer than disability periods for other occupational injuries and illnesses.

The American Psychological Association estimates that workplace stress (including absenteeism, diminished productivity, employee turnover, medical, legal and insurance expenses) costs U.S. businesses about $300 billion a year.

And a 2009 survey by Towers Watson and the National Business Group on Health found that companies that maintain health and productivity programs even amid the recession experience lower health care and disability costs.

However, companies are not doing enough to reduce stress experienced by employees due to excessive work hours, lack of work/life balance and fears about job loss, the survey said.

It found that only 24 percent of companies are taking actions to address excessive workloads, 40 percent are acting on work/life balance and 42 percent are addressing fears about job loss.

It’s worth noting that JFK Advanced Medical, the airport health center cited in the Crain’s story recently launched an employee-assistance support services program, according to the report.

The program is designed to provide the aviation workers community with counselors and programs for things like anger management, anxiety, depression and substance-abuse counseling.

More of these types of programs may be needed if we’re not to see more workers activate emergency slides in future.

Soft Market for Balance of 2010

While we were out on vacation, online insurance exchange MarketScout published its latest market barometer.

For those of you that missed it, MarketScout’s analysis reveals the composite rate for property and casualty placements in the U.S. measured down three percent for July 2010, compared to minus six percent a year ago.

MarketScout founder and CEO Richard Kerr, observed that insurers got just what they needed to continue aggressive pricing for the balance of the year: favorable midyear reinsurance terms.

Barring a major catastrophic event, we predict an overall soft market for the balance of 2010. Rates will continue to moderate in select coverages or industries but the composite rate will probably continue to show a small reduction from the immediately preceding year.†

General liability was the most aggressively priced product line (down 5 percent) in July, followed by BOP and commercial property at minus four percent.

Crime (flat), D&O liability, EPLI, professional liability and surety (down 1 percent) were the coverage classes experiencing the smallest decreases.

Check out I.I.I. information on reinsurance, and  I.I.I. information on the industry’s financial results and market conditions.

Increasing Use of Social Media in Disasters

In a recent post we discussed how social media was playing an immediate and important role in disaster recovery efforts after the Haiti earthquake.

Now a survey from the American Red Cross shows that web users increasingly rely on social media to seek help in a disaster, and expect first responders to be listening.

It found that if they needed help and couldn’t reach 9-1-1, one in five would try to contact responders through a digital means such as email, websites or social media.

The survey also showed that 69 percent said that emergency responders should be monitoring social media sites in order to quickly send help – and nearly half believe a response agency is probably already responding to any urgent request they might see.

In addition web users expect a quick response to an online appeal for help – with 74 percent expecting help to come less than an hour after their tweet or Facebook post.

The survey also found that among web users, social media sites are the fourth most popular source for emergency information, just behind television news, radio and online news sites.

More web users say they get their emergency information from social media than from NOAA weather radio, government websites or emergency text message systems.

And about half would sign up for emails, text alerts, or applications to get emergency  information such as location of food/water, evacuation routes and shelter locations.

Check out ReadWriteWeb blog for more on this story. Check out information on I.I.I. social media tools and websites here.

Tropical Weather Outlook

Forecasters at the National Hurricane Center (NHC) are monitoring two low pressure systems, one located over the southeastern Gulf of Mexico less than 100 miles from the southwest coast of the Florida peninsula  and another about 820 miles east-northeast of the Leeward Islands.

The NHC gives  each system a 60 percent chance of becoming a tropical cyclone during the next 48 hours.

In its latest forecast for the 2010 Atlantic hurricane season, the National Oceanic and Atmospheric Administration (NOAA) National Weather  Service has reiterated its call for a very active season.

NOAA estimates a 70 percent probability of: 14-20 named storms; 8-12 hurricanes, of which 4-6 could be major hurricanes.

NOAA said atmospheric and oceanic conditions now in place  over the Atlantic Ocean and Caribbean Sea are very conducive to hurricane formation and it expects these conditions to persist through the season’s peak months of August to October.

So far this season three storms have formed in the Atlantic, including the first June hurricane (Hurricane Alex) to form in more than a decade.

Check out the latest  NHC graphic below:



Check out I.I.I. facts and stats on hurricanes and hurricane fact files and market share by state.

Moscow Heat Wave

My brother works in Moscow and has been complaining of the extreme heat and smog. Now I’ve read today’s BBC report I understand why.

Apparently the concentration of carbon monoxide in Moscow is still more than double acceptable safety norms as smog from peat and forest wildfires continues to blanket the city amid an ongoing heat wave.

Temperatures of more than 35C (95F) are forecast for the Russian capital until Thursday.

As reported by the BBC, Moscow’s health chief Andrei Seltsovsky today confirmed to reporters that the mortality rate has doubled as the heat wave and wildfire smog continue.

Mr Seltsovsky did not attribute the rise in the mortality rate to either the heat wave or smog, however.

Over at Wunderblog, Dr. Jeff Masters observes that the number of deaths in Moscow in July 2010 was about 5,000 more than in July 2009, suggesting that the heat wave has been responsible for thousands of deaths in Moscow alone.

Dr. Masters says:

I would expect that by the time the Great Russian Heat Wave of 2010 is over, the number of premature deaths caused by the heat wave will approach or exceed the 40,000 who died in the 2003 European Heat Wave.†

Life Insurance Retained Asset Accounts: A Perspective

We take a break from our vacation to bring you our first ever post on a life insurance topic.  I.I.I.  senior vice president and chief economist Dr. Steven Weisbart  offers an  insightful perspective on an established  life insurance industry practice that is coming under fire.

A life insurance industry practice that has served beneficiaries well for a quarter century and has generated few if any complaints to state insurance departments came under withering fire last week via an article published online and scheduled to appear in the September issue of Bloomberg Markets magazine. The article focused on how the industry practice affected the beneficiary of a $400,000 life insurance policy  Ã¢â‚¬“ the mother of an army sergeant who died in Afghanistan while saving the lives of three others.

Seemingly within minutes of the article’s appearance, the acting under secretary for benefits at the U.S. Department of Veterans Affairs, Michael Walcoff, announced an investigation, and New York Attorney General (and candidate for New York Governor) Andrew Cuomo subpoenaed a half dozen life insurers as part of another investigation. A few days later, U.S. Representative Debbie Halvorson (D-IL) introduced a bill that would set new rules for life insurers using this practice.

What practice caused this furor? In the absence of any other selected settlement option, life insurers place death benefits in the equivalent of an interest-paying checking account. Beneficiaries get checks with which to withdraw/spend the money, which stays in the life insurer’s general account until it’s withdrawn. Materials provided to beneficiaries make clear that the account is not FDIC-insured and periodically report on interest credited and the remaining balance.

So what’s wrong with this? According to the Bloomberg article, virtually everything. The article suggests the practice cheats the families of those who die, stealing money from the families of our fallen servicemen. This unregulated quasi-banking system operated by insurers has none of the protections of the actual banking system, the article reports. Next, life insurers are accused of not disclosing that the funds aren’t FDIC-insured, so beneficiaries are misled into thinking the funds are in an FDIC-insured bank. The industry does this to hold onto death benefits that they’re not entitled to. The article notes that life insurers earn interest on the funds at their corporate rate yet credit uncompetitive rates on death benefit balances, resulting in secret profits for insurers. And so on.

The article is such a one-sided diatribe that it’s hard to know where to start. It treats an FDIC-insured bank account as safer for death benefits than the general account of a life insurer, ignoring the state guaranty laws that insure death benefits for $300,000 to $500,000, depending on the state (vs. FDIC’s $250,000 limit, which was $100,000 at the time the death of the army sergeant occurred). It ignores the bank failure rate of the past few years vs. the superior rate of almost no life insurer failures. It says life insurers shouldn’t earn a higher rate on the funds and credit a lower rate, but says the money should go into a bank account (where it ignores the fact that the bank would do the same thing). It says the insurer should send the beneficiary a check for the entire amount instead of holding onto the money, ignoring the likelihood, based on long insurer experience, that when insurers did that the checks often either went uncashed for long periods of time or were spent/invested unwisely and effectively lost. This practice, at least, credits interest uninterruptedly at a rate that is comparable to accounts with instant liquidity.”

If you have questions or comments, please email Dr. Weisbart at