by John Darer® CLU ChFC MSSC RSP CLTC
Berkshire Hathaway has picked up the mantel on dealing with factoring and bridging the brand retention gap that exists for structured settlement annuity issuers when annuitants sell structured settlement payments rights.
After months of "town hall meetings" with (and gathering input from) its business partners, structured settlement brokers and settlement planners, Berkshire Hathaway Life Insurance Company of Nebraska announced the roll out June 28, 2017, of a pilot awareness campaign for its Hardship Exchange Program (HEP).
Says Berkshire Hathaway "Payees enter into structured settlements for good reasons, the foremost of which is long-term security. Our product’s most important advantage is its “fixed and determinable payments”, but factoring companies market this positive as a negative, encouraging payees to undo all or part of their structured settlement in exchange for cash. Structured settlement factoring transactions are generally bad for payees. In addition to giving up security, most payees sacrifice substantial economic value".
Berkshire Hathaway's Experience to Date
- Structured settlement factoring transactions require court approval under state structured settlement transfer statutes (a/k/a structured settlement protection acts or SSPAs)
- Factoring companies are required to provide notice of transfer hearings to interested parties, including the life insurer and annuity owner.
- For more than a decade, Berkshire Hathaway has tried to protect its structured settlement payees by participating in appropriate cases. Berkshire Hathaway stresses that the court must ensure the transaction is in the payee’s best interest, and they volunteer potentially important information, such as an explanation of the payee’s past transfers. Berkshire Hathaway also explains that, if the court determines the “best interests” threshold has been met, Berkshire Hathaway would agree to be bound by an order to accelerate the same benefits at a lower discount rate, thereby reducing the loss to the payee.
- Berkshire Hathaway claims that its acceleration terms have provided payees with payouts averaging 25% more than they would otherwise receive, and in many cases as much as 50% more. Unfortunately, its efforts have dissuaded neither judges nor factoring companies Worse, they have not benefited many payees. By the time Berkshire learns of a transaction, most payees feel locked in or are simply unwilling to start over, even if it would be to their benefit.
Berkshire Hathaway Moves to "Control the Message" in its Pilot Program, in Texas
Berkshire says it has decided to explore better ways to communicate with its structured settlement payees.
Payees may receive negative messaging about their structured settlements from factoring companies pushing "cash now" either through the media or through direct, unsolicited contact. "Ain't that the truth?"
As part of a pilot program, and in an attempt to provide constructive reinforcement, Berkshire Hathaway will be sending the educational notices to a test group of payees in Texas. Download Berkshire Hathaway Structured Settlement Hardship Exchange Program notice to Payees
The test group expressly excludes payees who are minors, Workers’ Compensation recipients, payees utilizing Special Needs Trusts, and payees who settled within the prior two years. Then, based on its experience in the Texas pilot program, Berkshire Hathaway will decide whether and how to communicate with its structured settlement payees on a broader basis.
How Can a Structured Settlement Hardship Exchange Help Brand Retention for Insurers
- If all structured settlement annuity issuers had a hardship exchange program it might cut down on abuses through education.
- At the very least no Berkshire Hathaway annuitant, given notice, should have to pay any more than the discount rate that Berkshire Hathaway offers in its Hardship Exchange Program. The bid from any factoring company must exceed what Berkshire Hathaway offers.
- Keeping in touch with annuitants is better for brand retention. I predict that consumers will feel better about Berkshire Hathaway because of the level of engagement.
- Getting educated by the unlicensed, unethical, uninformed abusive element of the structured settlement factoring industry is not good for your customers.
- Avoiding servicing agreements where you essentially turn all customer interaction over to the very company that seeks to profit from the destruction of long term financial security. It's time to overturn the "churn and burn"
The Structured Settlement Community Should Not Let History Repeat Itself
Berkshire Hathaway has been thoughtful in both its approach and its transparency. They deserve to be commended for their efforts.
Beginning about 11 years ago, certain structured settlement brokers' and settlement planners reacted very negatively to Allstate Life Insurance Company's effort's to do a similar thing, spooking Allstate into temporarily suspending the sending of Advance Funding Exchange Notices [ see Allstate Structured Settlement Annuity...Why Get Shafted if You Have One?] The factoring industry gas lighted the problem, helped along, perhaps unwittingly, by another industry blogger who muddied the waters on the viability of commutations vs factoring.
Berkshire Hathaway recognized this and excercising its tactical nous, didn't just rush to market with the Hardship Exchange Notices.
History has shown a few things
- That factoring companies target Allstate annuitants with reckless abandon and feel no obligation to notify them that Allstate offers an 8% discount rate, while the purchaser charges more than Allstate would. A notable example is a 2013 Florida case I reported about, pre-SSPA reform, where a 29 year old Allstate annuitant, a single father with toddlers and cognitive deficits was bamboozled into selling his entire structured settlement and a guaranteed lifetime job paying $60,000 tax free with COLA, using a discount rate that exceeded Allstate's AFEN by more than 400 basis points. He never appeared in court, where, in my opinion the judge would have been immediately able to observe the cognitive deficits. Fortunately the annuitant read this blog and contacted me the day the money hit his account. He was put in touch with a lawyer who negotiated a favorable deal for the annuitant and, with the cooperation of the factoring company, the transfer order was vacated and his payments restored.
- There are well documented cases of just heinous abuse in the structured settlement factoring industry and we've only just scratched the surface.