by John Darer CLU ChFC MSSC RSP CLTC
As we continue to comment on the Cordero vs Transamerica matter, it's worth revisiting some of my commentary from 2011 as yet another example of the strategic failure of state legislatures to address a reasonably forseeable problem related to structured settlement factoring when a parallel problem was being addressed with life settlements.
Who is NCOIL?
NCOIL is a legislative organization comprised principally of legislators serving on state insurance and financial institutions committees around the nation. NCOIL writes Model Laws in insurance, works to both preserve the state jurisdiction over insurance as established by the McCarran-Ferguson Act in 1945, to serve as an educational forum for public policy makers and interested parties.
Founded in 1969, NCOIL works to assert the prerogative of legislators in making state policy when it comes to insurance and educate state legislators on current and perennial insurance issues. It's tag line is Sound Public Policy in 50 States for 50 Plus Years
In 2011, the National Conference of Insurance Legislators ("NCOIL") took a stand on strong life insurer disclosure to policyholders in its passage of a Life Insurance Consumer Disclosure Model Act. The purpose is to assure that policyholders are aware of their options, including secondary market options such as life settlements.
“It is imperative that policyholders understand that they have alternatives to merely lapsing or surrendering their policy. The model would require a clear notice to consumers, listing eight available options, including accelerated death benefits, conversion to long-term care, and the possibility of a life settlement.” NCOIL President Robert Damron
The NCOIL Model Act Was Deemed Controversial According to 2010 Press Release
"The controversial model was the subject of extensive debate in 2010, including multiple Life Insurance & Financial Planning Committee hearings and conference calls and enjoyed input from a panoply of interested parties including legislators, regulators, and representatives of the American Council of Life Insurers (ACLI), Coventry, Institutional Life Markets Association (ILMA), Life Care Funding Group, Life Insurance Settlement Association (LISA), Life Settlement Institute (LSI), Mass Mutual, MetLife, and Prudential Financial". The latter two companies have subsidiaries that issued and still issue structured settlement annuities.
The 2011 model applies to policyholders over the age of 60 or terminally/chronically ill.
NCOIL's Abject Failure on Structured Settlement Disclosures
Although structured settlement annuities are a segment of the life insurance industry and while NCOIL and its members were aware of the structured settlement secondary market, it has been slow to adopt disclosure of secondary market options.
Before, I took a break from the Society of Settlement Planners from late 2005 through early 2011, there was talk about speaking to NCOIL. I don't know whatever happened with that. What happened though is that by 2008-2009
Settlement Planners Strongly Objected to Allstate's Efforts
Allstate, which stopped writing new structured settlement annuities in 2013, was first mover in overtly addressing the factoring dilemma.
Pressure from a number of settlement planners and structured settlement brokers contributed to an Allstate Life Insurance Company decision to stop sending annual notices to structured settlement annuitants about its AFEN liquidity option. The result, as I've previously written, is that a number of liquidity seeking Allstate structured settlement annuitants were hosed by effectively paying higher than necessary discount rates on structured settlement factoring transactions than they might have, had they been notified by Allstate as had been the custom and practice prior to 2007. On several occasions I was contacted by Allstate structured settlement annuitants armed with a quote from one of the big "cash now pushers" where the effective discount rate exceeded Allstate's AFEN rate and there was no disclosure by the cash now pusher that such an option from Allstate was even available.
A classic example of this was an outrageously unsuitable 2013 deal engineered by now defunct Client First Funding in connection with a then Wells Fargo investment adviser that was caught early enough that the transfer order could be vacated and the annuitant's cash flows from the structure were restored. The annuitant, who was unemployable single father of two dependent toddlers was receiving about $60,000 annually with a COLA for life from Allstate. The unsuitable Client First deal had a discount rate that exceeded the Allstate AFEN rate.
Was Client First Settlement Funding Show Of 8% Investment Projection to Structured Settlement Annuitant A Permissble Inducement? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
We've observed a similar style of caper in February 2021, involving a New York resident, a Florida factoring company and the same individual who was once with Wells Fargo. Judge in Niagara Foils Structured Settlement Factoring Last Stand, Citing Bob Dylan in Reject of Boca Broker - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
Settlement Planners Also Objected to Berkshire Hathaway's Hardship Exchange Program
NCOIL Press Release on Life Insurance Consumer Model Act Download 11242010LifeDisclosurePR