In a companion article to the National Underwriter's recent comprehensive analysis of the Executive Life of New York (ELNY) Liquidation ("The Complete ELNY Saga"), writer Warren Hersch asks: "is the structured settlement process in need of reform"?
The Hersch article highlights a "potpourri" of structured settlement issues:
- Business practices - including disclosure and suitability issues
- Structured settlement regulation - or lack thereof
- Industry lobbying
- Industry education
- Broker compensation
- Structured settlement transfers
- IRC 468B qualified settlement funds
- Declining annuity sales
- Increasing case complexity - including annuity/trust blended products
- An evolving settlement planning profession
- Responsibilities of plaintiff attorneys
- Financial strength of annuity providers
In addition to industry criticism, the article features diverse individual perspectives demonstrating a foundation for industry consensus:
- Len Blonder
- “No other option today can match the structure’s mix of tax-free income and guaranteed security.”
- "A casualty company should ... be allowed to vet their own representatives of choice.”
- "Plaintiffs are free to hire any financial professional from among the tens of thousands that are available to them."
- Joseph Dehner
- "A personal injury attorney for claimants who isn’t even considering a structured settlement in high damage cases is bordering on malpractice."
- “Structured settlements have become both more flexible and complicated because of the advanced planning that now accompanies these transactions.”
- "Continuing low interest rates on the fixed annuities used to satisfy settlement claims [is] the key factor" in explaining the recent declines in structured settlement annuity sales.
- Jeremy Babener
- “The qualified settlement fund (QSF) allows for a significant increase in the amount of time that payees have to make necessary determinations.”
- "But for the single plaintiff, use of the vehicle comes with uncertainty. That’s because it is unclear whether a single plaintiff is treated for tax purposes as receiving funds deposited into a QSF."
- Timothy Morbach: “More should be done to recognize that the field of settlement planning is highly specialized and that [claimants] should make efforts to retain separate and qualified financial and legal counsel with respect to the strategies they wish to implement.”
- Charles Schell: “If the plaintiff's attorney engages a settlement planner, then .... , more likely than not, the product or plan recommended will be suitable.”
- Peter Gallanis: "The rate of insolvencies among life and health insurers, now at an all-time low, are but a fraction of the hundreds of failures within the commercial and investment banking and thrift sectors during the financial crisis."
- Eric Vaughn: "IRC Section 5891 has effectively prevented many abuses ... that commonly occurred in prior decades."
Perhaps this National Underwriter article will help motivate the structured settlement industry to undertake its own strategic analysis about whether and how to reform the structured settlement process. Immediate existential challenges certainly exist. In addition to the ELNY liquidation, these challenges include:
- Declining primary market annuity premium
- Historically low interest rates
- Potential reforms to the tax code and the tort system
- Implementation and impact of Dodd-Frank and the Affordable Care Act
- Transitioning business skills, relationships and processes to the Internet.
Assuming Charles Darwin was correct: It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.
The primary strategic issues for the structured settlement industry are whether, when, how and to what degree it will become "responsive to change"?
Can industry leaders:
- Be honest ? - Acknowledge the problems. Study the changes. Abandon political correctness. Question traditional assumptions, business models and business practices.
- Be inclusive ? - David Ringler, NSSTA's first president, re-stated NSSTA's original vision during NSSTA's 2011 annual conference: "I still believe having a place where everyone and anyone can sit down with each other and discuss the issues and viewpoints regardless of beliefs is the most important reason for NSSTA. ... If we can continue this tradition, there is no problem we cannot overcome."
- Be open ? - The late James Corman insisted promoters of structured settlements were "on the side of the angels". Does that statement remain true today? To regain public trust, empower stakeholders and expand the customer base, structured settlement strategic planning needs to re-emerge from behind closed doors. Important industry issues need to be articulated and discussed openly.
- Listen to customers ? - The profiles of ELNY structured settlement victims featured in "The Complete ELNY Saga" provide a valuable introduction. Prior market surveys should be re-visited, updated and expanded. The traditional "one and done" structured settlement customer model needs to be re-evaluated.
- Engage critics ? - and challenge/encourage critics to be part of an industry solution by incorporating their relevant issues and best ideas into a strategic thinking process? These critics include legal and financial professionals who view the structured settlement product and market as core components of a larger and more complex settlement planning industry.
For related S2KM reporting and analysis, see the structured settlement wiki: