If Structured Settlement Agency A Supplies Annuity Quote to B Who Supplies Quote To C, Who Works For D, Who Supplies To E, the attorney for end user F. Who is Responsible to Plaintiff F in this "Who's Who"?

by John Darer CLU ChFC CSSC RSP

An open question for comment from the structured settlement industry, including its appointed general agencies, appointed agencies, structured annuity issuing life companies, insurance regulators and legal commentators.

Assume
XYZ= an admitted Insurance Company that issues structured settlement annuities
A= the managing general agent that has an agency contract with XYZ and/or one or more of its principals who are appointed agents of XYZ
B= another insurance agent or agency that has relationship with A, but not directly with XYZ
C=financial planner with limited experience with structured settlements, no active insurance license in the state of solicitation or the domicile of the proposed qualified assignee, and no relationship with XYZ
D= Investment House, employer of C, with relationship to B
E= attorney for injured party
F=injured party

Further Assume

• Neither B, C nor D are appointed agents of XYZ for structured settlement annuities.
• As part of its contract XYZ pays financial compensation to its appointed agent A for placement of structured settlement annuity business.
• A pays compensation to B for structured settlement annuity business B refers to A that is placed with XYZ, and other insurance companies.
• B pays D compensation for structured settlement annuity business placed with XYZ (and other insurance companies) that D, or any of its employees (such as C) refers to B (that B then refers to A for placement).
• C gives E a document that he/she refers to as "D's structured settlement quote" as part of his/her effort to solicit and get F to agree to a structured settlement annuity as part of his/her/their recovery.
• The document labeled "D's structured settlement quote" is a standard "Quote in The Box" quote from Navisys quoting software issued to appointed agents by XYZ and the quote is emblazoned with the name of A.
• A denies a relationship with C or D or an obligation to supervise them. A  merely provides a quote (with A's name on it) to B which then provides the same quote (with A's name on it) to C or D, who represent the quote (with A's name on it) as their own to E, per above.
• F likes the quote (with A's name on it) and tells E that he would like to do business with C.

Questions

1. Is everything kosher with this transaction? If not, why?
2. Is A insulated from the actions of C or D in this "daisy chain" with respect to potential claims by E or F?
3. Are there any best practices issues that can be learned from the above?

DISCLAIMER: This post is intended for educational purposes only. Any resemblance to real persons living or dead, or companies active or inactive (with the exception of the Navisys reference) is purely coincidental.

 

Comments

[Chuck Derenne]

Structured settlements are one small part of the settlement planning process. In my opinion, those who are not full-time settlement planning professionals are doing a disservice to our industry and ought not to be permitted to solicit structured settlement sales. Providing inaccurate and/or incomplete advice can only lead to less growth for our industry, less trust in our offerings, and higher E&O premiums.

My understanding of the insurance laws in my home state, require that I be licensed and appointed by any and all life insurance companies prior to solicitation to any resident of my home state. Furthermore, my understanding is that the structured settlement markets all require that the soliciting agent must be appointed by their structured settlement department. Additionally, most structured settlement providers require that their appointed agents also be licensed in the state in which their assignment company is domiciled.

I know one structured settlement market is taking these prohibited sub-brokering practices very seriously and can only hope all markets follow suit before we lose control of our product. And if the life markets want to allow part-timers to try to sell our product, at least make them get licensed and appointed like the rest of us. And then, if they are sub-brokering through a NSSTA-member agency, send the full list of wire-house brokers to NSSTA so they can send out invoices for annual membership dues. Once these part-timers see that it costs time and money just to have the privilege of representing our outstanding carriers, I think they'll either leave our product in the hands of true professionals or become one themself.

This is not a subject which can be ignored, especially if you are a structured settlement professional with no such sub-brokering arrangements. Think about it. If a plaintiff attorney believes a stockbroker/financial planner can advise his injured victim on both structures and self-investing, why bother calling in a structured settlement professional at all. And if you are not being called in to discuss structures, there is very little opportunity to sell structures. And to the life markets, do they really think the stockbroker/financial planner would rather sell a structured settlement annuity that might pay him a one-time 2% (assuming a "50/50" deal with his structured settlement broker) or 1% if it's a co-brokered deal? Or would they make more on managed money for many years to come. Come on life markets, protect those who want to sell your product and see our industry grow and prosper.

And for the structured settlement agency principals, I would ask that you re-read your agency agreements that you have with your markets to see if you are violating their sub-brokering rules. And if you don't take steps to get in compliance, I will not feel sorry for you one bit if you lose one or more of your life markets. And as we all know, not having all markets or losing one or more key markets is a quick way to lose agents and sales.

[John Darer]

From one of our readers:

"John-- When I entered the structured settlement industry, I believed (and still do to a large extent) that it is an “invitation only” business because it requires a body of knowledge and skills that goes beyond simply quoting and selling annuities".

"That being said, your commentary cited above, in my eyes, addresses an issue worth examining. This I will disclose upfront. I live in a little cocoon. I have a few friends in the industry, but I don’t get involved, so I don’t know who any of these players are. The comments I will make here are purely academic"...

"I imagine the agency agreement structure firms have with carriers include a duty to supervise sub agents. The scenario you painted lacks that. More importantly in my mind is that the firms are allowing the brokerages to “sell” structures as another financial product on their shelves. They have cynically commoditized a product that is not meant to be sold as a commodity and put in the hands of people who “run money.”

Now you get back to the licensing issues. The COMPLIANCE DEPARTMENT of their BROKER-DEALER and their RIA should be having a heart attack to learn that their people are participating in multi-state transactions in which they are not properly licensed".

"I’m tired of writing and have work to do, but as you have laid this out, I’m quite certain, that if the life markets are happy, it’s only because they are turning their heads to their own standards. The real BOMB is with the B/D"