by John Darer CLU ChFC MSSC RSP CLTC
Where Pat Hindert Sees Bleak I see Strands of Optimism
The fact is that premium is up 7% year over year, according to industry statistics annually compiled by Melissa Evola of SFA. It's worth noting that production increased despite the withdrawal of two companies from the market in February 2013. It is also not clear if the numbers of those companies for Q1 2013 were counted.
Berkshire Hathaway was the dominant company in 2013 with $1,424,306,831. The rest of the pack:
- Pacific Life/PLA - $848,725,000 (+ $11.7 million)
- MetLife - $726,000,000 (+ $62 million)
- Amgen/USL - $587,367,753 (+ $61.3 million)
- Liberty Life - $558,106,000 (+ $147.3 million)
- Prudential Life - $548,700,000 (- $86.7 million)
- New York Life - $275,253,601 (- $47.5 million)
- Mutual of Omaha - $86,598,027 (+ $29 million)
The withdrawal of Allstate has quite clearly made a major difference in the production of Liberty Life, which has filled the void for annuity non qualified assignments. It is truly remarkable if you consider that Liberty Life Assurance Company is considering, but does not presently do the structured sales, structured celebrity endorsement fees and structured oil and gas lease bonuses and creative uses of NQAs from which Allstate drew its aplomb, if my math is right and using Evola's stats, Liberty's business grew more than 35.8%. [ Based on Evola's stats 2012 Liberty production would have been $410,806,000; $147,300,000 added to that would bring us to $558,106,000 in 2013].
The decrease in non qualified annuity premium cited by Evola and trumpeted by Pat Hindert is unremarkable at $6.2 million. It is prima facie evidence that Liberty and the brokers who support it "did the business". Bravo! And we can do better! It is unclear whether Melissa Evola's stats included the TFSS/ Structured Assignments Inc, non qualified assignment production that funds with treasury obligations and does include structured sales. Evola's stats do not speak about alternative non qualfied assignment products from Kenmare Assignments, new entrant Havelet Assignments, or the fact that peridodic payment reinsurance programs through National Indemnity and MetLife are viable solutions to non IRC 104(a)(2) cases where the payor is an insurance company.Speaking from my own personal experience, demand is improving on the non qualified side. Given the number of calls I get per week on structured sales and the expressed comfort with an annuity funded product, I might be able to make up the industry slack on my own if the solution were available. I know of one broker in Texas who could probably do that in a good afternoon.
AmGen's numbers will undoubtably improve when it eventually earns an A+ rating from A.M. Best. Their rates are generally among the most competitive.
The introduction of the Pacific Life indexed linked structured annuity rider in Q2 2014 will be a positive step for the industry to increase opportunities and I hope it inspires others who have similar products on their retail shelves to adapt and make them available to the distribution channel.
Prudential has just released a moving testimonial video featuring a widow who received a structured settlement as part of her pilot husband's workers compensation settlements. As amusing and annoying the JG Wentworth commercials are, it's good to see a video that associates the term "structured settlement" for what it really is and really does.
Bumps in the Road
- The ELNY debacle, while very tragic and unfortunate for some, has had little effect on industry production or perception of structured settlements. It proved that the statutory "tin cup" doth not runneth over and lent further credence to the old adage that all one's eggs should not be in one basket.
- Nothwithstanding the issues set forth in the case, The Hartford v Spencer case proved to be non event as far as industry production goes. The gloating by one of the lawyers, a former structured settlement broker, that his lawsuit was the reason that Hartford got out of the structured settlement market was replaced with a "high protein scambled egg on face" when Hartford returned to the market a year and a half later. At best it showed that there is forum for addressing bad business practices. Some folks went in that direction and overall the indstry has improved as a result. That Hartford withdrew from the market again in 2012, like the first time had nothing to fo with the attorney. Following my calling out of the lawyer, his professional website now reads "His class action lawsuit against a major insurer was followed by the insurer’s adoption of significant changes in its structured settlement practices"-what it should have read in the first place,
- The factorabilty of structures has fortunately not proved to be the issue it was for trial lawyers 5-7 years ago. Some lawyers have even set up their own factoring companies or factoring brokerages and invest in structured settlement payment rights (and pre settlement financing). The New York City law firm at the center of the alleged fraudulent court orders story has an active personal injury practice. The Illinois law firm that is a co-Defendant in the class action against JGWPT is a lawyer with an active Chicago personal injury practice. The secondary market lacks the uniform professional legitimacy, in my opinion, that a licensing and advertising standard brings. There is a big slime factor, involving people who feign magnanimity but play dirty, with some participants apparently even willing to circumvent the law. Yet there are at least 3 individuals active in the structured settlement primary market who are involved as originators in the structured settlement market in a big way because they want to change things. So why not make it more legitimate and set enforceable standards, on par with the rest of the financial services industry?.
- At this point I find the "low interest rate" objection to be weak and easily overcome. Structured settlements are not an all or nothing financial solution. A structured settlement is a core income solution that works for many people. Many people want safety, security and guarantees as part of the new normal after their financial transition. In the late 1990s we competed with a screaming stock market that suffered the crash of the dot coms in 2000. Then there was the uncertainty after 9/11. Thne there was 2008-2009. Some of our potential clients have suffered two crashes and possibly 3 or 4 if they were investing in 1987 or 1990-1991. How about those who lost money on real estate? Or BItcoins? Or Bernie Madoff?
Retooling of the structured settlement mind set
The primary structured settlement industry has been in the process of retooling for several years. Many individual players and/or companies have already found ways to sell the product or service for the core income and risk anagement tool that it is as opposed to simply selling interest rates. If you started participating in the structured settlement business after 1984 you would for the most part have been dealing with a sequence of lower interest rates. SOMEHOW (eye roll), we managed to do $6B, more than 20 years later, when interest rates were less than half of what they were in 1984.
Hindert likes to posture the debate as the settlement planning model v the claims model. It's not as simple as that, in my opinion. It's a skill set, it's knowledge and ability to articulate and the ability to harness the modern day 21st Century tools at your disposal to promote your business while not forgetting some of the lessons and skills from the 20th Century.
To be continued.