by John Darer® CLU ChFC CSSC
Andrew Cravenho, a structured settlement factoring industry thought leader, has advanced a couple of points for discussion. This post deals with one of them… structured settlement commutation.
With respect to structured annuity issuers enhancing commutations already built into their contracts, in lieu of, or as competition to factoring, Cravenho writes:
"There are currently two annuity issuers who factor structured settlements- Allstate and Clearscape Funding (Symetra). The problem with these two companies is that they have high discount rates starting at 10-12%, they take forever to complete a transaction, and it is a conflict of interest to purchase the settlement on the back end and make another profit off of the annuitant. An annuitant can receive a better rate anywhere".
Comments
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Allstate commutes, Clearscape(Symetra) factors.
- Allstate offers a commutation rider to provide liquidity on large structures for premature death, to pay estate taxes, medicaid liens in SNTs etc. and has done so since 1995 or so. This author was at the firm that represented the plaintiffs in the case that gave rise to Allstate's Private Letter Ruling that led to the commutation rider. The terms of such rider generally provide 95% of the PV of the remaining annuity payments based on a predetermined formula. Many other structured settlement annuity issuers offer such communtation riders.
My point is that any structured annuity issuer should explore simply enhancing their existing commutation rider for hardship. I agree that 10-12% can be beaten anywhere, especially by someone as resourceful as Mr. Cravenho. If however, such annuity issuers were to offer an enhanced commutation rider with a hardship liquidity rate that was minimally more competitive than 90% of the factoring companies then the price gougers in the factoring industry would be S.O.L. unless they brought their prices down, wouldn't they? The financial crack dealers would be off the streets and off the TV screens. Hallelujah! Expensive advertising means expensive deals. Annuity issuers could simply build the hardship liquidity function into their contracts and offer standards that with few exceptions the factoring industry appears too weak to adhere to. For example, such transactions could be ineligible for a period of 2-3 years from the creation of the structured settlement to avoid abuse.
There is no conflict of interest if an annuity issuer offers a tailored liquidity function. No kick backs from cash now pushers to settlement planners which drain the cash paid to the tort victim, no idiots screaming from balconies or fat Viking opera singers or mass solicitation letters, or plasma for structure!
On the other hand there IS a conflict of interest, in my opinion, if a wholly owned subsidiary is operating as a factoring company and purchasing structured settlement payments rights from its related company and its competitors. It's one of the reason that this author's company WILL NOT do business with Symetra Life Insurance Company.
See Symetra Doesn't Really Want To Be In The Structured Settlements Business Do They? in which this author delivered a very public and deserved "Up Yours"!
If the factoring industry could actually police itself and have reasonable standards of solicitation the above possible solution might not be necessary. Unfortunately there appears to be no such effort across the factoring industry and the firms within have had a more than reasonable time to demonstrate good faith in this regard.
Finally, this is not an indictment of Mr. Cravenho, or any of the constructive players in the factoring industry, other than to perhaps tweak him on the gas station price sign faux pas in his post. Given that the price of gas is now averaging $2 per gallon less than what he has illustrated one could say that Cravenho's price chart represents that level of factoring company effective discount rates that are found to be so offensive.
No kibbles and bits for you laddie!
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