by John Darer® CLU ChFC MSSC RSP CLTC
Andrew Cravenho of the Settlement Quotes, LLC, a structured settlement factoring intermediary, shares his thoughts on structured settlement payment servicing in his post dated November 9, 2009.
Cravenho said:
“The process of servicing payments for structured settlement recipients after completing a structured settlement factoring transaction is not a new practice and is a common occurrence in the industry”.
“The issue is caused when an annuitant decides to sell only a portion of their payment. Rather than selling an entire payment, they decide to keep a portion of that payment and dice the payment in half or as they see fit.
- Most insurance companies will accommodate this process and send the appropriate portions to both parties, the tort victim and the investor.
- The problem arises when a structured settlement factoring company does a transaction with an annuitant who decides that they want to dice payments and the issuer is 1 of the 3 companies who will not dice the payments“. WHO ARE THESE INSURANCE COMPANIES?.
Cravenho saw the following problems with structured settlement payment servicing:
- Certain structured settlement factoring companies were using this scenario as an excuse to service annuities that did not need to be serviced
- The annuitant no longer owns the rights to their future payments
- If the annuitant was ever in a situation where they needed to sell more payments, the structured settlement factoring company who completed their last transaction is the only company that is able to complete any future transactions for that individual. Cravenho says this raises the potential for price gouging
Cravenho suggested the following possible solutions on structured settlement payment servicing:
- The first solution would be to have the insurance companies who currently won’t dice payments, start dicing payments. This would eliminate any and all need for any structured settlement factoring company to service payments.
- Companies who may need to service payments should use a third party bonded, insured, and licensed company to handle their servicing.
On May 15, 2009, I emailed NSSTA executies and market leaders and outlined the issues about payment servicing
Dan (Durbin)/Joe (Ricci),
As you may be aware a number of annuity issuers/assignees are permitting factoring companies to
“service” the annuity issuer/assignee’s structured settlement obligations. The arrangement starts off with the first factoring deal, which is for a portion of the payments and the factoring company ends up with all the payments paid to them (not just the factored payments) with the “balance” to be “passed through” tothe annuitant. We believe that life insurers may agree to this to save administrative costs. This has been going on since before the financial crisis. But what are the ramifications? Has anyone considered them?
The following needs to be addressed promptly:
As a result of the “servicing” annuitants apparently no longer interface with the annuity issuer and
instead must interface with the factoring company on the non factored payments being serviced.
GET THIS! Upon calling the annuity issuer the annuitants are purportedly being told to call the
“servicing” factoring company by the annuity issuer!
I am aware of an annuitant who has been solicited for the second time by a factoring company that is
“servicing her payments”. This is all within a year of annuity issue. The factoring deal was referred
by an NSSTA member (who swears to me that he/she did not take any compensation on the liquidity
scheme).
What happens if the factoring company “servicing” goes belly up?
- Does the annuitant have to take any extra steps to be assured of timely receipt of payments,
when they are completely dependent on them? - What extra costs are incurred or potentially incurred in the event there is a bankruptcy as a
result of the “servicing”.
In permitting the payments to be “serviced” by a factoring company are some NSSTA member life
companies wittingly, or unwittingly complicit in facilitating the next factoring deal? What is the
perception? How many members are marketing the spendthrift protection of structures and are unaware of these issues? - Here is what one factoring broker says about servicing.
The Real Truth About Servicing by Andrew Cravenho - NSSTA must take a position on this practice and inform its members
While I did receive an email acknowledgment of the receipt of the aforementioned email from an NSSTA executive the day it was sent , there has been no further NSSTA response to this author or to the general NSSTA membership.
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