Are Retained Asset Accounts At Insurance Companies FDIC Insured?

August 12, 2010 – The FDIC warned the insurance industry to properly disclose to consumers that Retained Asset Accounts (RAAs) are generally not insured by the FDIC Deposit Insurance Fund.   Reacting to reports in the media that many customers believe that RAAs are FDIC insured, the FDIC sent a letter to the National Association of Insurance Commissioners, expressing “serious concerns”.

Retained Asset Accounts are established by insurance companies to pay out death benefits from a life insurance policy over a period of years when the beneficiary does not want a lump sum payment.

The FDIC regards it as a very serious matter when a company misrepresents to a consumer that an account has federal deposit insurance coverage.  The FDIC concluded, after reviewing sample documentation from an insurance company to a beneficiary, that a customer could mistakenly conclude that a RAA was FDIC insured.

Customer confusion regarding FDIC insurance coverage on a RAA may arise since banks are commonly used to provide administrative services in connection with payments from a RAA.  In certain cases in which RAA funds are held by an insured depository institution and the insurance company is acting as a fiduciary, the account may be FDIC insured.

Additional consumer confusion may arise since a RAA may be backed by a state “guarantee” fund.  To avoid public confusion, the FDIC feels “strongly” that clear and conspicuous disclosure should be made by insurance companies and appropriate differentiation made between FDIC coverage and state guarantees.

Proper disclosure of what guarantees exist on a RAA took on greater significance since it was disclosed last month that more that $28 billion is being held in RAAs by over 100 insurance companies.   Owners of a RAA should know in advance if an account is protected in the event of failure by an insurance company.

The FDIC also made it clear that banks performing administrative duties in connection with RAAs need to ascertain that the insurance company is providing clear disclosure to customers regarding FDIC insurance status.

FDIC Chairman Sheila Bair said that “Public understanding of FDIC insurance and when and how our guarantee applies is of the highest importance to us”.