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NY Insurance Department Issues Opinion on Guaranty Fund Ads in Social Media: It's Unlawful

by John Darer® CLU ChFC MSSC RSP CLTC

Insurance agents and structured settlement brokers who want to jump aboard the social media train should know who how social media inter plays with insurance advertising laws.

In a November 22, 2010 opinion the New York State insurance Department Office of General Counsel responded to an inquiry made by the Structured Settlement Watchdog®, John Darer®, with the following points:

1. "The the use of a LinkedIn profile page or similar website for promotion of insurance, insurers, or insurance agents or brokers, constitutes an advertisement, announcement, or statement under New York Insurance Law".

2. "A licensed insurance agent or broker who solicits structured settlement annuities MAY NOT properly speak or write about guaranty funds even in general terms, in connection with the solicitation of annuities to lawyers or their personal injury clients".  (emphasis ours). As part of its analysis the OGC cited to a January 26, 2009 opinion letter that was issued in response to a request by the structured settlement watchdog in conjunction with an NSSTA brochure containing a general discussion of such funds.

3. "The inclusion of an express disclaimer in marketing materials, such as  statement that the existence of guaranty funds is not a reason to buy insurance, or a direct reference to the provisions of Insurance Law 7718, will not render guaranty fund references in such marketing materials acceptable"  (emphasis ours)

It is a well known fact that business people use LinkedIn, Facebook, YouTube, blogs, video podcasts and other social media to expand their business network and as a result,  to write more business. Indeed the inspiration for the request was the posting by a structured settlement broker, William Fazio, of a slide presentation on the subject within his LinkedIn profile and online social groups within theLinkedIn platform, that include New York attorney members. Fazio's slide presentation still resides on LinkedIn as of December 1, 2010 at 730pm EST.

The final and perhaps most poignant question addressed to the OGC was:

is there an acceptable way under Insurance Law 7718 for a licensed insurance agent or broker to respond to inquiries on the subject of guaranty funds?

Their Answer: "Agents and brokers are advised to refer any questions about guaranty fund protection to the Insurance Department or to a licensed insurer, which may, upon a written request, provide information about the guaranty fund to policyholders by means of a form prepared by the guaranty fund and approved by the Superintendent of Insurance"  (emphasis ours)

A big thank you Michael Campanelli, Esq. of the New York State Insurance Department Office of General Counsel, for taking the time to write the opinion and provide thoughtful analysis that provides practical "best practices" guidance to structured settlement brokers and agents of every persuasion, plaintiffs and personal injury lawyers.

For a copy of the complete opinion, including  the questions posed to the department by the structured settlement watchdog, please click the following link Download NY Insurance Department 11222010 on Propriety of Guaranty Fund Ads in Social Media

Those Who Do What Is Prohibited by Article 77 of New York Insurance Law

Despite the clarity of New York State Insurance Law I have been made aware, from plaintiffs , that on multiple occasions structured settlement brokers  are doing that which is is expressly prohibited by Article 77. What is worse and what regulators need to be made aware of is that this is occurring when lower rated companies are being pushed. This is exactly the reason why such an advertising prohibition exists in New York and most other states. Last January, this author obtained a legal opinion from the New York State Insurance Department to answer questions raised concerning an NSSTA brochure which were prepared by NSSTA for its members to use in the solicitation of insurance.

I don't know whether or not the property and casualty companies retaining some of the brokers in question know of the ILLEGAL sales pitch but I can assure you the directors of those programs will be informed. I don't see how they can afford having these people on their approved lists, representing their companies,   potentially exposing their companies.

 

 

 

 

Are North Carolina Insurance Agents Violating The Law, to Sell Structured Settlements?

by John Darer® CLU ChFC MSSC RSP CLTC

In an August 30, 2009 post I discussed a quote appearing in the North Carolina Lawyers Weekly's August 17, 2009  report concerning structured settlement annuities.

In the August 17, 2009 article R. James Lore, a Cary, NC attorney is quoted as saying that "many of the structured settlement companies were selling these annuities and telling people they had coverage from the guaranty fund, and meanwhile, the guaranty fund was saying there was no coverage here.

I asked at the time "Who are these structured settlement companies? If what Lore said is true, the behavior of these "structured settlement companies" appears to violate the following North Carolina statute":

N.C. GS 58-62-96 (a) No person shall make, publish, disseminate, circulate, or place before the public, or cause directly or indirectly to be made, published, disseminated, circulated, or placed before the public, in any newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any oral or written advertisement, announcement, or statement that uses the existence of the Association or this Article for the purpose of sale or solicitation of or inducement to purchase any kind of insurance covered by this Article.

North Carolina Life & Health Guaranty Association prohibition on advertising  (N.C. GS 58-62-96)

Despite this prohibition, It has come to my attention that financial advisor Patrick Munro of Northstar Financial Advisors Wilmington, NC discusses the state guaranty funds in a video posted on the Internet entitled " Why Invest in Annuities" (below)  According to his biography he solicits business in North Carolina and South Carolina. He shows an active life insurance license in both states North Carolina.

I target Mr. Munro because he also has a video about "structured settlement annuity".

 

Let's set aside the disturbingly eerie similarity to the cadence of Ben Stein (i.e "Bueller?, Bueller? Someone? Anyone?) and address why some of what Patrick Munro states is inaccurate.

Munro inaccurately claims the Insurance company will invest your money under government guidelines so you cannot lose principal

Comments:

1. An annuity is a contract which is backed by the full faith and credit of the annuity issuing life insurance company.
2. Despite recent calls for federal regulation, annuity issuing life insurance companies are not federally regulated. They are regulated by each state in which they do business. An explicit liability reserve is established, pursuant to statutory accounting,  for all invested asset classes of the insurer with the aim of providing protection to a company's surplus against potential losses in equities and credit markets. Realized or unrealized losses are credited or debited against the reserve. In 1991 the old Mandatory Securities Valuation Reserve was replaced with the Asset Valuation Reserve (AVR) which added mortgage loss reserves to the formula. 
3. A classic recent example is the effect of guarantees on variable annuities that were so popular but proved to be an albatross around insurers necks during the recent financial crisis. Actuaries priced these under a set of assumptions for a worst case scenario that were exceeded by the financial conditions which ensued. Fortunately the companies only saw ratings drops.