By H. Dennis Beaver
October 9, 2018 at 5:00 am ET
On Oct. 19, Pacific Life opens a fabulous 6-day event halfway around the world for the U.S. structured settlement industry. According to the invitation, which my office received from a structured settlement planner, the gathering at the Four Seasons Maldives is to “exchange ideas on how to promote” annuity sales to accident survivors. Attendees are encouraged to bring a guest.
Since the Four Seasons advertises pristine white sand beaches and turquoise waters, I suspect that settlement planners will do more than discuss insurance.
As if the Maldives event isn’t enough, U.S. structured settlement planners and their guests are also invited to a 4-day gathering at the Four Seasons in Dubai this year.
Pushed into an insurance annuity?
One of the best things Congress ever did for injury victims was to change the tax code in 1983 to encourage structured settlements. This allowed accident survivors to have long-term financial income funded by an insurance annuity that is exempt from Federal and state taxes.
This was a crucial change because plaintiffs often prefer to take as much cash as possible, which is generally the worst option. Hand most people several hundred thousand dollars and in a few years it will all be gone. When that happens, these accident survivors likely go on public assistance.
But incentive trips like these raise a disturbing possibility: Will structured settlement planners push accident victims to certain insurers’ annuities even if other companies offer better or less expensive options?
And how can the victims or their lawyers be certain that the settlement wasn’t influenced by a broker itching to join a fancy trip?
Congress should know that evidence appears to show that these trips are changing the marketplace for structured annuities. Industry data reveals that Pacific Life’s structured annuity sales dropped nearly 10% between 2013 and 2014, when the company did not offer incentive trips.
But in 2015, it announced a week-long junket at the Four Seasons in Bora Bora and sales surged. In 2017, it announced more trips. Annuity sales have gone from $770 million in 2014 to nearly $1.2 billion last year, even as the overall structured annuity market was nearly flat.
I reached out to the company for a response. The company had no comment.
Most accident victim lawyers I know expect structured settlement brokers to act in a fiduciary capacity for their clients. If I knew that a planner’s advice to my client to select a certain insurer was connected to an incentive trip, I would never use that broker again.
Lawyers are fiduciaries, protecting their client’s best interests. But our job is made more difficult if clients and judges think the structured settlement is being pushed so a planner can join an insurer’s glamorous trip.
Time for Congress to look at these incentives
Since Congress established the structured settlement program, it has the power and the duty to investigate these incentives and possible harm to accident victims. Reps. Jim Sensenbrenner and John Lewis are co-chairs of the Congressional Structured Settlement Caucus and both have repeatedly stressed the need for structured settlements. Senators such as Elizabeth Warren, Charles Grassley, and Richard Blumenthal have all raised concerns about incentive programs in the finance industry.
The vast majority of U.S. structured settlement planners work hard to help injury victims. But insurance incentive programs threaten to undermine confidence in their efforts and in structured settlements.
Congress needs to shine a light on this situation. It may cause temporary pain in the industry but it will bolster long-term confidence in a program with unmatched potential to help those in need.
Finally, I would not be surprised to see class action litigation result from these trips. In my legal opinion, thousands of annuitants could argue they were victims of a monumental consumer fraud and conflict of interest.
Because that’s what it smells of. And even if simply by appearance, the harm done to structured settlements is significant.
H. Dennis Beaver is an attorney in Bakersfield, California who writes extensively on consumer fraud and consumer protection.
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