by John Darer CLU ChFC CSSC RSP
Does the inability of agents to make, publish, disseminate, circulate or place before the public, or cause directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in any newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio station or television station, or in any other way, any advertisement, announcement or statement which uses statutory insurance protections, place the agent or broker at a disadvantage to those that label derivative products "annuities" who do what agents and brokers cannot in their marketing efforts.
The following appears on the web page of Somerset Wealth Strategies Inc. entitled "Premium Secondary Market Annuities" as part of its disclosures:
"Secondary Market Income Annuities (SMIA): Factored Structured Settlements (FSS) & Lottery Winnings (LW) SMIA, FSS & LW are not deposits and are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. They may be partially or wholly guaranteed by State Guaranty Associations and Somerset WS makes no representations or warranties in this regard".
Here's what the insurance statute says in the state of Oregon, where Somerset maintains its primary office:
|Advertising Prohibition Policy
734.890 "Association not to be used in sales or solicitation" No insurer or agent shall make, publish, disseminate, circulate or place before the public, or cause directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in any newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio station or television station, or in any other way, any advertisement, announcement or statement which uses the existence of the Oregon Life and Health Insurance Guaranty Association for the purpose of sales, solicitation or inducement to purchase any form of insurance covered by the Oregon Life and Health Insurance Guaranty Association Act. This Section shall not apply however to the Oregon Life and Health Insurance Guaranty Association or any other entity which does not sell or solicit insurance or to public service institutional advertisements by individual insurers.
Similar prohibitions appear in many states.
On November 22, 2010, in response to our request, the Office of General Cousnel of the New York Insurance Department issued an opinion, concerning a reference to statutory protection in a slide show associated with a LinkedIn profile, that addressed, among other things, the use of a disclaimer. http://www.dfs.ny.gov/insurance/ogco2010/rg101107.htm
A number of marketers of structured settlement payment rights aggressively use the term "annuity" to describe "structured settlement payment rights" which, for the average reader, implies a regulated insurance product sold by licensed agents or brokers.
Where is it appropriate to draw the line on secondary market advertising of statutory protection, with or without disclaimers, before it becomes a moral hazard*? If, as is the case with New York General Obligations law, that the New York Structured Settlement Protection Act applies to the placement of a structured settlement annuity contract (see NY GOL Section 5-1702), OR the transfer of structured settlement payment rights (see NY GOL 5-1703), why does the sale of a product whose proponents label it an annuity, bears some characteristics of an annuity (but has wiggle room not to be), and which advertising appears intended to capitalize on cognitive dissonance, not have to come under the same rules?
During my investigation into why ELNY victim's entire financial futures were entrusted to such a company in a sea of red flags, one particular annuitant wrote " these were backed up and backed up" [ see my post On Executive Life of New York | Touching on a Touchy Subject].Clearly there was a misunderstanding of the nature of the back up that was fostered by someone that advised them, be it a judge, a lawyer or an insurance agent, who encouraged the acceptance by stating that there was back up.
Is a lack of clarity in regulation with respect to "secondary market annuities" creating a potential moral hazard?
*such prohibitions on advertising are intended to protect against the moral hazard that results when someone dismisses risk in favor of a real, or imaginary, financial safety net.