by John Darer CLU ChFC MSSC CeFT RSP CLTC
Berkshire Hathaway has taken a leadership position among structured settlement annuity issuers by addressing the realities of structured settlement factoring through strategic engagement of its structured settlement annuitants. The notices warn annuitants about conduct of structured settlement payment buyers and offer details of Berkshire Hathaway's Hardship Exchange Program. Read Berkshire Hathaway Life Hardship Exchange Notice to Structured Settlement Payees 2-2018
In 2017, Berkshire Hathaway began an experiment by notifying its own structured settlement annuitants in Illinois, Indiana, and Georgia. Its mailing was limited to payees who have been with Berkshire Hathaway for two years or more. Berkshire Hathaway did not send notices to minors or payees who had settled workers compensation claims or were utilizing special needs trusts. It is now expanding such notices to Arizona, New Jersey, Pennsylvania, Virginia, West Virginia. Annuitants in those states will receive such notices between the weeks of February 19, 2018 to February 26, 2018.
Here is an excerpt of the warning of the most recent Berkshire Hathaway notice:
"Beware of Companies Offering to Undo Your Structured Settlement
You may see advertising from companies offering to buy future payments from you. You may even be
contacted directly by such companies who found your name in public records. You entered into a
structured settlement for good reasons, and it is usually a bad idea to undo it. If you sell payments, not
only will you give up the benefits of the structured settlement, but in most cases, you will be offered
substantially less than your payments are worth.
These companies may employ aggressive tactics to encourage you to make a bad decision. If you
respond to their advertising or if they directly contact you and you show any interest, they may reach
out to you repeatedly to try to get your business. If you exhibit a willingness to do a bad deal and sell
some payments, they may aggressively encourage you to enter into repeat transactions. Since the sale
of payments is public record, their competitors may also start to pursue your business.
Any company attempting to buy your payments will need a court order to complete the transaction.
They will be required to provide us with notice of the court hearing. If you are offered poor economic
terms, or if the company withholds important information from the court, we will intervene to make
sure you and the judge know. While we cannot prevent you from willfully entering into a transaction
that is not good for you, the court may rule that it is not in your best interests"
Rationale for Berkshire Hathaway Hardship Exchange Program
Berkshire's stated belief is that by taking an active role, fewer payees will factor, and when a payee does factor with them, more of the original transaction will be preserved. When a payee calls, Berkshire Hathaway reinforces the value of the structured settlement and discourage the payee from factoring. When we think it is appropriate, we work with the payee to minimize the size of the transaction. In addition, Berkshire currently use a 6.5% discount rate rate, further reducing the size of the transaction. Finally, Berkshire uses a hardship standard, rather than the less rigorous “best interests” standard found in most state structured settlement protection acts.
Moreover, Berkshire Hathaway continues to file informational affidavits in respect of external factoring transactions where we, as interested parties, are allowed to do so. Berkshire Hathaway provides additional information to the court that may have been left out of the application. In particular, they report on previous factoring transactions and declinations. They also explain the economics of our hardship exchange program. Anecdotally, Berkshire states that they are aware of several instances where a factoring company has materially increased their offer to the payee after Berkshire made its filing.
Don't The Hardship Exchange Notices Encourage People To Sell Their Structured Settlements?
Berkshire Hathaway Life reports that less than 1.5% of payees receiving a letter have reached out to them by phone. Some payees who have not received a letter continue to reach out to them on their own initiative. Taken together, of the payees who reach out to them, roughly one-third ask to be sent an application. About half of the applications they send are completed and returned to us. Finally, Berkshire only agrees to work with about half of those applicants who do return an application to them.
The Berkshire Hathaway program is a very good thing, in my professional opinion, and has increasing acceptance among settlement industry professionals. Well publicized efforts to shine the light on questionable and sometimes fraudulent business conduct by structured settlement factoring weasels, not to mention a Houston personal injury lawyer who tried to buy his Louisiana client's structured settlement through an offshore entity at a horrible discount rate that was triple the best rate.
Why Berkshire Hathaway is Doing The Right Thing
- Reinforces value of structured settlements in general and structured settlements issued by a Berkshire Hathaway company in particular.
- Provides education to annuitants about a potentially useful service, if its needed and if the annuitant qualifies. The education comes from a legitimate source (i.e. not an affiliate marketer, illegitimate review site or structured settlement directory site, "flash LLC", self proclaimed geniuses sporting dunce caps, Indian or Philippines SEO firms with no bona fides and no direction, being paid pennies to wax wastefully).
- Drives down discount rates. Other companies that want the business would have to beat Berkshire Hathaway's rate. Some fear that driving down discount rates will encourage more people to sell, but the statistics don't support that theory according to Berkshire Hathaway's report.
- Strategic engagement reinforces the Berkshire Hathaway brand.
- For those who have no alternative but to raise money but to sell payments, Berkshire Hathaway will split payments. This eliminates the need to use a servicing company. Customers can continue to engage with Berkshire Hathaway instead of leaving the ongoing education and engagement in the hands of third parties who seek to profit from a sale of their structured settlement payments.