"Insurance Wrap" is a Scam
Posted in the Banking Forum
Since: May 10
#1 Jul 20, 2013
I am an insurance professional having been a VP for one of the largest carriers in the world. I also have 20 years experience in the trenches on the alternative financing side. I can literally say I have been there done that. Do you doubt it? Well give me the benefit of the doubt and read on.
The idea of using insurance as a guarantee is very elegant and is in fact being done at the higher corporate and government levels such as in sovereign debt and municipal bonds. However, after 30 years in business the idea of an insurance company agreeing to sign any bank paper as a guarantor is ridiculous.
When I hear anyone using the tern "wrap" I know they do not know what they are talking about. This is broker talk plain and simple. There is a thing called a financial guarantee bond. Insurance companies do issue them. However, and as you all know, insurance companies do not take risks. Our job is to make a profit without taking risks. Risk taking is speculation or gambling and we do not do that. Insurance companies are not risk takers. They are risk managers and underwriters.
I have heard of a few fake companies that claim to issue financial guarantee bonds but these companies only want to take borrower's fees. Here is how that scam works: The insurance company agrees to issue their bond after you meet certain criteria. An intermediary signs a fee agreement with the borrower/client saying that when they obtain a binder for the borrower/client the intermediary is due a fee. The fee must be deposited in some sort of escrow or trust prior to issuance of the binder. The binder is issued with conditions that the borrower/client can never live up to. The fee is earned and the borrower/client has a document that is not good for anything. Another dissatisfied customer to spread rumors about how we small financiers cheated him and how more government regulation is needed to protect the public.
The big banks love this because the more regulations restricting the little guy the more control they have to monopolize their industry. This means that legitimate borrowers who happen not to be of substantial wealth or an insider can not get in the game. We independent guys can go all over the world like cockroaches jerking each other off and taking huge risks.
A finer point. The indemnity contract. Before an insurance contract or bond can be paid the insured has to suffer a loss. The lender is not a party to the contract. The contract is between the borrower and the insurer. This means that the borrower must suffer a loss due to an insured event presumably because of default on a loan. After the default the insured would have to prove that they suffered a financial loss by paying a the lender's demand. Then the insurance company can pay the claim. 1. If the borrower could pay the demand there would be no need for insurance. 2. Events that might trigger a default might not be a covered event. A failure to pay is not the only kind of default. A change in financial position could also trigger a default. Also, the events that would trigger the default may not be covered by the insurance. All insurance contracts have exclusions. Covered events may be different from the lender's default. And finally, if I were the underwriter I would insist on having the option of making up a missed payment rather than suffering a complete default. It is a rule in insurance that losses can not be a matter of choice by the insured but rather as a result of events beyond the insured's control.
But from a logical point of view why not have the insurance company insure the lender's portfolio rather than the risk of a single borrower? Insurance is about the spread of unanticipated risk rather than taking risks.
I am putting together something that will address these issues and I am looking for a small team of financiers to help me. Contact me if you understand what I have said and you want to do something about it.
Since: Jul 11
#3 Jul 21, 2013
Finally! Someone with true business experience has joined this forum.
I was lonely, and now, I have company.
Welcome "Greenshield" to the snake pit.
#4 Jul 21, 2013
A two headed snake!!!
#5 Jul 21, 2013
Cheever's at it again with tooting his own horns. In many instances here, he has even admitted that he is nothing more than than a street broker standing in the middle (monkey in the middle to be precise); trying to sell the securities which he is not entitled to, but he still wants to play with the fire as an idiot. Begging for the business from and amongst all the idiots here.
Cheever, pal, you had any credentials, you would have proved it by now? You got nothing, so go on ranting and raving, and tooting your own horns. Only real know who you are and won't bother with you.
Don't know A Justday from adam, so won't support his diatribe against you and nor here to bolster his allegations. Sharing an honest opinion based on the observations.
Know that you will come back with your worthless charade, as that is all you can do. So, go on, Whine!
Greenfield, you want to do real business, go back to where you came from, and work within your circle. Let the idiots stay in their joker broker domain, and you stay in your professional, and whom you know personally. None who posts on this forum will come to avail for you.
#6 Jul 21, 2013
*apologies - Greenshield, meant to address in the earlier thread. Please forgive for the typo. Thanks
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