The United States structured settlement industry has drifted into an era of unprecedented transition and change with stagnant annuity growth and without any articulated industry strategic plan or strategic planning process.
Forces causing structured settlement transition and change:
- Financial service regulatory reform - with consumer protections;
- Tax reform - with reviews of existing subsidies plus potential new tax-subsidized products for disabled persons;
- Health care reform - with expected new rules for Medicaid (special needs trusts) and Medicare (set-aside arrangements);
- Internet-based business models - with improved performance standards and metrics for communication; planning; marketing; learning; product development and work processes;
- Class action lawsuits - exposing bad structured settlement business practices regardless of whether these practices are illegal under current laws;
- Growth of affiliated business markets - special needs planning; lien resolution; the secondary market; Medicare secondary payer practice; life care planning; settlement trusts; and money management of settlement proceeds;
- Retirement and/or death of first generation structured settlement industry leaders.
To recognize strategic change and successfully transition to settlement planning, a larger, more complex business, the structured settlement industry needs new focus, new vision, new leaders, and new "claimant centric" business models.
To better understand and grow their market, the new structured settlement leaders should begin by re-examining industry myths about their customers (injury victims). Where the myths are wrong and misguided, these new industry leaders should reject the historical myths and re-invent structured settlements based upon truth not fiction.
Among structured settlement industry myths, two are especially pernicious, long-standing and related:
- Myth #1: injury victims squander lump sums. Nine out of 10 lump sum recipients dissipate the entire amount within five years.
- Myth #2: structured settlements enable injury victims to live free of reliance on government assistance.
What have been the consequences of these industry myths for the structured settlements?
- Inefficient and anti-claimant business models;
- Product sales instead of settlement solutions;
- Bad business practices - whether or not illegal;
- Lack of market research and product development;
- Selectively incomplete education;
- Defensive and anti-growth political strategies;
- Abandonment of injury victim customers to the secondary market;
- Stagnant structured settlement annuity growth.
What if both myths are false?
Expert commentators have already challenged both myths:
- Adam Scales - When Professor Adam Scales first questioned the myth of squandering injury victims in his remarkable 2002 University of Wisconsin Law Review article titled: "Against Settlement Factoring? The Market in Tort Claims has Arrived", he was reviled by leaders of the primary structured settlement market. Seven years following the publication of Professor Scales' article, structured settlement and settlement planning leaders continue to quote false dissipation statistics and mis-characterize existing dissipation studies to promote a negative and false psychological and financial profile of injury victims.
- David Lillesand - David Lillesand, a leading social security and special needs attorney, has spoken and written about the critical need for serious injury victims to qualify for Medicaid. According to Lillesand, Medicaid is a "life or death" matter for such individuals. Structured settlements do not enable serious injury victims to live free of reliance on government assistance. To the contrary, unless the annuities are paid into a special needs trust, structured settlement annuity payments disqualify injury victims from receiving Medicaid. Even when structured settlement annuities are paid into a special needs trust, the legal rules for structured settlements are either unaddressed by current legislation and regulations and/or uncertain in their application and requirements.
Meet Jeremy Babener , part of a new generation of structured settlement knowledge leaders, and a third year law student at New York University. Babener has accomplished something no one in the structured settlement industry has attempted - a comprehensive review of historic dissipation studies involving injury victims. Babener's new legal research paper, titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlements," includes extensive Appendices with detailed analysis of 12 dissipation studies relevant to U.S structured settlements.
Babener's paper, which examines and challenges the myth of the squandering injury victim:
- Refutes the existence of any published study supporting the statistic that "90% of lump sum recipients dissipate their recoveries within five years".
- Identifies existing dissipation studies that reach a contradictory conclusion: injury victims have no greater propensity to dissipate money than non-injury victims.
- Incorporates interviews from a cross-section of structured settlement industry practitioners who support the assertion of common lump sum dissipation based on personal and anecdotal experience.
- Calls for a modern study to ground the structured settlement subsidy in proven data.
S2KM begins its public 2009 strategic re-evaluation of structured settlements with a blog series about dissipation studies featuring Jeremy Babener's research. In subsequent posts, S2KM will summarize and review Babener's new dissipation paper and interview Babener about his dissipation research.
For related S2KM blog posts, see: