by Structured Settlement Watchdog
2017 Revisions to the Life & Health Guaranty Association Model Act | 80% Adoption Rate
The 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520), now adopted by 80% of US states, closes a loophole that supports a false narrative that factored structured settlements are insurance products and thus may be eligible for statutory protection in the event of the liquidation of the underlying insurer.
An Express Exclusion From Coverage for Acquired Structured Settlement Payment Rights
The 2017 Revisons to the Life & Health Guaranty Associations Model Act expressly exclude acquired structured settlement payment rights and gives no solace to those who invested in such instruments prior to their adoption of the Model Act. They are shafted in an insolvency because the Model clarifies that here is no coverage regardless of when the structured settlement payment rights were acquired, even if the acquistion was prior to the date the Model Act Revision was adopted in the state.
2017 Revisions | No Effect on Structured Settlement Annuitants Receiving Payments
So if you are receiving payments from a structured settlement, which represent (1) damages for which you are being compensated for your personal physical injury or physical sickness or workers compensation; or (2) you are receiving such payments as a beneficiary of someone who died who was receiving payments which represent damages, for which they were being compensated for workers compoensation, physical injury or physical sickness
What's The Structured Settlement Payment Investor Exclusion All About?
Structured settlement factoring companies are not licensed or regulated by insurance regulators (although that may be changing in North Carolina, if pending HB845 becomes law next year). A few states require registration with the Secretary of State, but laws in this regard are sparse and typically enacted when there has been some sensational news story of annuitants of a state being fleeced, appearing in the national or regional media that exposes serious and often embarassing gaps in state law, known but ignored for more than two decades in many cases.
What structured settlement factoring companies sell to investors are reveivables, not an annuity or insurance product [see National Association of Insurance Commisisoners Statutory Issue Paper No.160 April 6, 2019].
When there is an insolvency, structured settlement factoring companies are not assessed by State Insurance Guaranty Associations in the event of an insolvency as insurance companies are. They don't contribute so it's logical that their investor customers do not benefit from it.
Buyers of Structured Settlement Payments Rights as Investments Must be Informed
Buyers of structured settlement payment rights from Secondary or Tertiary markets should be informed, before investing, of the lack of backstop to their investments in 80% of the States, with the gap likely to close in future.
Fianancial advisors who source structured settlement payment rights to sell to their clients from the secondary or tertiary markets should inform their customers of this fact in the states where it currently applies. Investors must be informed so they do not make a purchase decision based on a false belief of a backstop.
Prior to the 2017 Revisions and their adoption, the lack of a definitive exclusion left an opening that was exploited in marketing materials by certain structured settlement factoring companies and tertiary marketers of structured settlement rights to investors. They were often marketed to investors as annuities, secondary market annuities and other acronyms, despite the fact that they were not annuities.
Some tertiary market companies went as far as to state that the "payments may be covered by state guaranty funds but they make no promises in this regard".
In those circumstances, had they been annuities and the tertiary marketers been licensed and subject to state insurance law, they would have been violating the law which prohibits the use of the existence of the fund in a sales pitch. in other words, there would be consequences. Knowledge of potential consequences would be a more effective deterrent than the status quo in the states that have yet to adopt the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520)
Who is the lack of adoption of the 2017 Revisions to the LIfe & Health Guaranty Association Model Act protecting in the remaining states? At whose expense?
Structured settlement investments come about because structured settlement factoring companies buy the rights to structured settlement payments from people who received structured settlement payments as consideration for a release of claims or settlement of a lawsuit against a Defendant, or group of Defendants.
The structured settlement factoring industry wheels are greased in the largest companies with securitizations of acquired structured settlmeent payments rights and with institutional lines of credit. Others including some of the smaller companies may go to wealthy private investors and pension funds. But some may make the receivables available to individual investors, including Moms and Pops. The 2008-2009 fianncial crisis opened the window for smaller investors when some of the larger sources dried up for a while. This even led to some settlement planners proposing the use of acquried structured settlement payment rights instead of annuities, but still using the term annuities in different ways in solicitations to trial lawyers and their sometimes very vulnerable clients.
In one specific case that I wrote about, a settlement planner pitched a judge to approve a settlement plan for a minor that included factored payments and subsequently that state, Arizona, adopted the 2017 Revisions and cemented the potentially negative consequences to the minor client. Should there be an insolvency in the future, there would be no coverage that settlement planner's client.