You might remember some time ago the open question posed to the industry: Why is Berkshire still a NSSTA member?  That question really teased out a larger issue that apparently prompted dozens of pages be written and dedicated to twisting and framing into far more acceptable, more  marketable language.  Here’s some blunt, honest talk to fill in all the gaps in such smiley bend-over talk.

Did you know that it’s apparently acceptable for insurers to factor their own annuities, but not another’s?  One’s OK because it’s called “servicing” whereas the other is called “factoring.”  In other words, when someone  else  makes money, it’s “factoring,” which is  bad  for the client, but if the  insurer  makes the money, then it’s “servicing,” which is  good  for the client.  This is merely poorly-veiled marketing-speak for insurers preferring to make money themselves in as many areas as possible, squeezing out as many competitors as possible.  Giants have mighty appetites, after all.

The idea that insurers factoring their own annuities is somehow good for the annuitants themselves is a Robin Hood story; just as fictitious as the fairy tale.  Many of you are opposed to factoring on principle, but argue that if the annuitant gets more money in the end, then hey, who cares if it’s the insurance company doing it?  This approach is problematic because it simply doesn’t account for all the facts.

Insurance companies that factor their own annuities aren’t providing a service, they’ve got the proverbial  golden ticket : the names, addresses, and payment details of every annuitant which, lest this be lost in translation, is a salesman’s goldmine.  You can mine your list for as long as you keep putting structures together.  But again, how’s that a bad thing, even from a business perspective?  How is that damning?  Because it’s a blatant conflict of interest for insurers.

Structures are put together in a careful way, with insurers as legally specified  gatekeepers  to factoring transactions.  They are the second line of defense, behind the Courts, to securing a factoring transaction based on an annuitant’s demonstrative  need , not simply desire, for structured funds.  How are insurers, in their gatekeeping function, supposed to adequately gatekeep against their own profit motives?  Are insurers going to object against making more money for themselves?  Of course not.

Some may claim that no profit is made off these transactions.  That’s silly to the point of foolish.  No service line or product from any insurance company exists to  not  turn profit.  As for measuring this profit, don’t look exclusively at the red or black numbers at the bottom of the sheet, but instead consider this:  insurers get tax breaks for making secure, guaranteed payments to underwrite structured settlements, the same structures that they’re going to now purchase, at a discount, and  still  enjoy the tax breaks despite not paying out to injured parties anymore, thus enjoying huge profits.  Beyond this simple rehash of how providing services actually  does  make money, there’s something more problematic at work: optics.

Structure brokers need attorneys to work with them to put these things together.  Attorneys already have qualms with the mere existence of factoring, so that many won’t advise structures for their clients, the would-be annuitants.  How does it look to these attorneys, then, for insurance companies – supposed benevolent gatekeepers – to have everything they need, that glorious  golden ticket , to relentlessly market to their clients?  Not so good.

Don’t believe any of this is happening, or that it’s just a twist on the benevolent intentions of your favorite insurer?  Look at those who already do it:  Visit Symetra’s website (symetra.com/clearscape) to see how unabashedly they sell factoring by marketing their familiarity as the insurance company and the ease of having all the required paperwork already.  Allstate, too, has an ongoing factoring entity.  Still others are taking it a bit slower, rolling into ‘test markets’ before unleashing themselves nation-wide, napkin and cutlery ready.  The list goes on.

Insurers aren’t white knights bludgeoning the evil factoring industry; they’re foxes guarding the henhouse, gatekeeping be damned.  Don’t like this new development?  Speak up; stand up and object.  Otherwise, you should remind annuitants to say ‘thank you’ while you assist them in bending over.

Fire and brimstone aside, we  do  have an industry-wide solution that can satisfy most, if not all parties.  It just requires us all to be on the same page before we get there.  The article is forthcoming.

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