by John Darer CLU ChFC MSSC RSP CLTC
This blog post is part two of my commentary on the Hindert Uniform Fiduciary Standard discussion. In the previous I focused on what Hindert generally leaves out (i.e. his long-time bias in favor of the secondary structured settlement market is evident by a traditional lack of criticism while over weighting criticism of the primary market).
But at least one point that Hindert raises is worthy of further discussion
He questions the use of the term "Guaranteed payments" to describe structured settlement payments by settlement professionals, observing "Many structured settlement sales brochures continue to promise "guaranteed payments" without specifying who guarantees what if and when an annuity provider like Executive Life of New York (ELNY) becomes insolvent"
I agree with Hindert. Structured settlements are contractual guarantees. The promise to pay is as good as the credit quality of the annuity issuer as it has always been. But the lack of regulation in the structured settlement secondary market and the lack of enforcement of regulation in the primary market results in the use of mostly unintentional, but sometimes apparently intentional use of terms that inaccurately reflect what the consumer actually receives.
To the extent that statutory protections for insurance consumers exist, current insurance law in most states prohibits licensed insurance agents and brokers from discussing statutory protections in a sales presentation for good reason. Regulators do not want agents and brokers encouraging consumers to buy from lower rated companies with poorer financials because of a good rate, and potentially stress the system (which in many cases in the event of failure is funded by a figurative "tin cup" passed around assessing solvent insurers). During the weeks and months after the AIG bailout in 2008, for example, we reported how a structured settlement broker may have crossed over the line in North Carolina with his online and direct communications with lawyers
Reports suggest that absent a legislative fix, the statutory protection afforded New York resident life insurance purchasers and annuitants is going to be tapped out by the ELNY liquidation.
Most structured settlement cases of any significant size today are diversified as they should have been, in my opinion, in ALL of the ELNY shortfall cases I have heard about. I can understand being called an armchair quarterback, but I believe my "street credibilty" is intact since I resisted and never placed ELNY business. I successfully competed against ELNY as a life insurance agent early on in my career when I was a Northwestern Mutual agent.
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