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December 23, 2006

Structured Settlement Contingent Commissions | My Take

by John Darer® CLU ChFC MSSC RSP CLTC

Structured Settlement Contingent Commissions

Let's discuss Mark Wahlstrom's recent blog post/warning in the aftermath of the tri-state Attorney General settlement over Chubb's payment of contingent commissions.

It's important for members of the public, Attorneys General, lawyers, insurers and plaintiffs to differentiate the nature of parties in a structured settlement transaction from the type of transaction that resulted in the Chubb settlement. The "policyholder" (owner of the annuity policy) is the "qualified assignment company" in most cases and the defendant in rare cases, Depending on who you are working for will dictate who your customer is.

1. In a structured settlement transaction, the plaintiff, or the plaintiff's special needs trust is never the policyholder. unless such ownership is later conferred through a qualified assignee default. The plaintiff or the plaintiff's trust only has the right to receive the structured settlement payments  ("structured settlement payment rights")

2. An important fact is that issuers in the structured settlement annuities all pay the same commission, 4% , regardless of who places it. The commission is based on the premium amount of the annuity placed. Ad hoc reduction to annuitants, by the structured settlement broker or settlement planner, is not possible due to the anti-rebating statutes on the books in most states. Thus there is no possibility that the mere fact that contingent commissions exist will stimulate steering of structured settlement business by structured settlement brokers or settlement planners.

There are casualty programs, few in number, where a related casualty company resolves cases through structured settlements, which may result in the placement of a structured settlement annuity with their related life insurance carrier (e.g. Hartford Fire-Hartford Life; Liberty Mutual-Liberty Life) which results in a 25% lower 3% commission to the structured settlement broker(s) or settlement planners. If anything, I think the mere factor, that the Hartford and Liberty pay "contingent commissions" serves as a disincentive to place such business rather than a reason to steer business to the particular annuity market**.

I am fully in favor of disclosure and have been doing so for years through a Structured Settlement Affidavit. Let's just not get carried away with it to the point where for example to write a term life insurance policy you might have 15 pages of forms plus an NAIC disclosure (which could also be another 15 pages- for each quote). I know the economy needs a stimulus but I'm sure Boise Cascade, Hammermill and Champion, not to mention the tree line, can do without us.

Level "contingent commissions" in the structured settlement industry are harmless. What the structured settlement brokers or settlement planners do with those commissions are earned and received is something beyond the control of the annuity issuer.

If a "Settlement Planner" wishes to donate vast amounts of his or her company's "contingent commissions" to a state or national trial lawyer associations and then a lawyer member or administrator of one of those associations pushes the donor settlement planner on a plaintiff out of a feeling of "obligation", does the plaintiff take that referral believing that the selection of this planner is based on due diligence? Or does he or she  process the referral as "here's Slick, he's a big contributor to our association...use him"?

Does the plaintiff deserve to know how much influence the settlement planner's donation has "bought"? How do you police this? Should you? 

For further information the subject of Structured Settlement Broker and/or Settlement Planner Compensation please read:

"How Does a Structured Settlement Broker Get Paid?" April 17, 2006

Mark Wahlstrom quote from Settlement Channel  post

"Why this is important is that any commission or compensation that is undisclosed to the policyholder could possibly influence the choice of insurance markets for that risk, and could have the effect of steering business to a company based on how much the agent makes, as opposed to what is best for the customer."

** Post script

The Hartford Life program was the subject of a class action lawsuit, Spencer v Hartford, that was settled in 2010, at a purported cost of $72.5 million. Liberty Mutual eliminated its program described above. Neither company offers structured settlement annuities in 2018.

 

Posted at 05:34 PM in Albany New York Structured Settlements, Bronx New York Structured Settlements, Brooklyn New York Structured Settlements, Buffalo New York Structured Settlements, Contingent Commissions, Hartford Financial Services Group, Hartford Life Insurance Company, Long Island NY Structured Settlements, Los Angeles CA Structured Settlements, New Haven CT Structured Settlements, New Jersey Structured Settlements, New Orleans Louisiana Structured Settlements, New York City Structured Settlements, New York Structured Settlements, Settlement Planning Issues, Structured Settlement Brokers, Structured Settlement Compensation, Structured Settlement Information, Structured Settlements |

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