Phony structured settlement quotes. Where are the state insurance commissioners?

Once again I've had the same wretched type of annuity settlement proposal that drives me crazy come across my desk from a competing broker. The kind of proposal that when I see it makes ask, " At what point are the shoddy sales practices of our profession going to get cleaned up".

I'm sure we have all seen a proposal like this, although I am hopeful you never present settlement proposals in this fashion. Let me try to list the "sins of omission" that plague this particular case:

1. The proposal is presented on the annuity brokers company letter head and was obviously typed in using word processing, all with the intent to demonstrate the suggested annuity program that this client should accept as settlement. Whats wrong with this you ask? Well, no where on the "proposal" is there any mention what so ever as to what life market is offering this annuity to the client! Only that this broker is creating an " Individually Designed Settlement " for the claimant.

2. The "proposal" and I use that term very loosely here, determines that the "cost " of the annuity is $65,962. Whats wrong with that you say? How about the fact that this broker created proposal has neither a starting date, or a deposit date, illustrated in the offer to the client? All it has is this wonderful narrative, " Payments to begin 1 month from Funding". Are you kidding me? Really? There is no way you can present a valid proposal absent a start date or a deposit date. None.

3. The "proposal" has the clients date of birth and what they purport to be the Normal Life Expectancy and Life time Yield of the program typed in. All of this in spite of the fact that this man has substantial health issues that will almost certainly result in his being underwritten medically and consequently receiving a rated age on this structured settlement. What that means, is of course, is his life expectancy is likely impaired so that the estimated life time yield is either meaningless or dramatically different. Also, upon what set of facts is this life expectancy number based? The 1980 CSO table, or just pulled out of thin air, which is it? You would never know from this proposal. 

4. The cost is based on this guys age, as well as a yet to be determined deposit date and a yet to be determined starting date. What else is missing from this "proposal" you might ask? How about A RATE CODE from the anonymous company? Obviously that is all too much to ask, given that this intrepid structured settlement professional decided to leave the life market nameless. 

5. A survey of all annuity markets currently writing structured settlement annuities was run by my office at Wahlstrom and Associates and in virtually no instance was my staff able to duplicate the pricing of this annuity, or even to match up the illustrated life time yield figure on his supposed life expectancy. We used current rates at all the life markets using their current quoting software, indicating to me that this entire illustration was a "representative number" and a rough estimate, although that fact was not conveyed to the potential annuitant. To put less of a fine point on it, this broker pretty much made this up all by themselves and just tossed some numbers out to a client to bait them into discussing an annuity knowing that there was no such annuity available to be purchased. 

I could continue on but you get the picture. Honestly, you could hardly find a more offensive example of potentially fraudulent sales and marketing practices of an insurance product if you set out to find it. What kills me is we all know exactly why this proposal is done in this fashion. So that the broker can "sell the benefit" and then select the market that allows him to place it at what ever cost he thinks his client might pay. It's fraud, pure and simple, and if any other professional did what this broker did, that professional would likely be in jail, let alone out of business.

If you are a structured settlement broker reading this could you please ask your self this question? Would you personally buy a mutual fund, to go into YOUR IRA, if you only were told the investment company AFTER you agreed to buy it, AND the only thing you had to rely on for your decision was a hand type proposal from a salesman? Of course you wouldn't, but that's exactly what this client is being asked to do, isn't it?

What makes this so appalling is that the structured settlement broker who presented this monstrosity of potential malpractice and administrative malfeasance is affiliated with one of the nations largest and oldest firms, and I know from my personal dealings with them, that they have been at this business for almost 17 years.

I have never before been so tempted to take a proposal and forward it to a state insurance commissioner for them to weigh in on the marketing practices regarding these sales illustrations and the promised benefits claimed here. If anyone, and I do mean anyone, ever tried to sell a life insurance or disability policy in a similar fashion they would rightfully be fined or prosecuted and lose their license.

How in the world can our "profession" continue to allow these sort of practices from the largest and most experienced of brokers? Just a tip to this broker, and they should know who they are if they are reading this, if I get another piece of paper like this sent to me by a client again I'm sending it to the State Insurance Commissioner to review and you can do your explaining to them. I'm tired of it and I'm not going to put up with it anymore.

Posted on July 23, 2008 .