Market Issues and Developments
The 2015 structured settlement marketplace could perhaps best be characterized as "changing the focus of our future" as industry leaders cooperated to create a positive future agenda to overcome, or move beyond, multiple challenges that continued to negatively impact both primary and secondary market performance metrics.
Industry challenges during 2015 included: 1) residual impact of the ELNY insolvency; 2) continuation of low interest rates; 3) unprecedented, negative secondary market publicity; and 4) an ongoing primary market generational transition.
Elements of the future agenda: 1) a shift in the traditional "protect and preserve" focus of the National Structured Settlement Trade Association (NSSTA) toward an expanded priority of identifying structured settlement growth opportunities; 2) increasing industry unity evidenced by improved communication and cooperation among NSSTA, the National Association of Settlement Purchasers (NASP) and the Society of Settlement Planners (SSP); 3) consumer protection amendments to multiple state structured settlement protection statutes; 4) expanding educational offerings with programs that specifically target judges as well as new industry participants; 5) public relations investments to help counteract negative industry publicity; and 6) further development and growth of a professional personal injury settlement planning market.
Primary Market Growth
In a recent S2KM interview, Michael Goodman, current NSSTA President, offered a personal estimate of $8 to $10 billion per year of annuity premium as the potential size of the U.S. structured settlement market.
The U.S. primary structured settlement market, however, has never approached that annual figure and, in fact, has experienced a significant decline since its peak of $6.2 billion in 2008. To better understand and reverse this decline, NSSTA has re-focused its priorities on expanding the use of structured settlements.
As a first step in 2014, in partnership with CLM Advisors, NSSTA completed a three-part structured settlement survey project of senior claims executives (Part 1), claims professionals (Part 2) and plaintiff attorneys (Part 3) the results of which provided NSSTA members with marketing tools for discussions with the audiences surveyed.
During 2015 NSSTA organized an "Industry Growth Initiative" to effectuate Goodman's number one priority of "identifying growth opportunities for the structured settlement industry." This Initiative is focusing on three preliminary growth opportunities:
- Rejuvenate defense programs.
- Amend the Federal Employee Compensation Act (FECA).
- Convertible deferred lump sums.
Goodman has further supported NSSTA's growth priority with these related goals: 1) modifying NSSTA's traditional "protect and preserve" message to inspire primary market growth; 2) moving beyond "interest rate selling"; 3) moving beyond a focus on factoring; 4) identifying and pursuing new markets for structured settlement annuities; 5) adding one or more new life company providers; 6) engaging new, younger structured settlement brokers; 7) providing a new and improved training initiative.
Although NSSTA's renewed focus on industry growth has not yet noticeably improved primary market metrics, an important psychological and organizational foundation has been created which should enhance future performance.
One significant factor which arguably has hurt the structured settlement industry has been the historic acrimony which has divided plaintiff and defense brokers as well as the primary and secondary markets and which has resulted in three professional associations (NSSTA, SSP and NASP) frequently at odds with each other.
In the words of former SSP President Neil Johnson: Lack of structured settlement industry unity has been "a drain - a drain on financial resources ... a drain on productivity ... a drain on our public image ... a drain on physical and emotional health. Lack of unity diverts attention from productive projects. It always focuses attention on the negative, never on the positive."
During 2015, the leaders of NSSTA, SSP and NASP expanded prior educational dialogue which began in 2014 at NSSTA's Fall Educational Conference which served as a precursor for improved association relationships by featuring SSP President Neil Johnson and NASP President Patricia LaBorde as guest speakers.
SSP's 2015 Annual Conference included an unprecedented number of structured settlement association leaders as speakers and attendees including representatives of NSSTA and NASP.
During the NASP 2015 Annual Conference , Robin Shapiro moderated an historic "President's Panel" featuring LaBorde and Goodman during which they announced a collaborative NSSTA and NASP legislative strategy to add five consumer protection amendments to targeted state structured settlement protection statutes:
- No forum shopping.
- Payee required to attend hearing.
- Stricter application of approval requirements.
- Advanced notice of transfer.
- Required disclosure of prior transfers.
Personal Injury Settlement Planning
With the advent of plaintiff structured settlement brokers, continuing legislative and regulatory developments, plus an expanding array of settlement planning professionals, products and product providers, structured settlements are now viewed by many stakeholders as a subset of the larger and more complex personal injury settlement planning market.
Based upon studies by Towers Watson, S2KM has previously estimated that more than $170 billion of current annual United States tort costs (excluding workers compensation) represents payments to injury victims and their attorneys compared with a projected $5.4 billion of structured settlement premium (including workers compensation) for 2015.
S2KM has followed the development of personal injury settlement planning during 2015 by reporting on a number of professional conferences peripheral to the traditional structured settlement market:
- Stetson 2015 SNT Conference
- NAMSAP 2015 Winter Regional Conference
- ASNP 2015 Annual Conference
- NAMSAP 2015 Annual Meeting
As NSSTA continues to evaluate options for growing its market, a new generation of leaders should more carefully analyze how to re-position their product as a fundamental component of post- Affordable Care Act personal injury settlement planning . This strategic adjustment requires a more comprehensive understanding of, and interaction with, other professional associations whose members also provide settlement planning products and services.
Secondary Structured Settlement Market
During her association's, NASP President Patricia LaBorde described 2015 as "a year of unimaginable successes and challenges". NASP's "challenges" included:
- Two blistering exposes of "worst case" secondary market business practices which appeared on the front pages of the Washington Post on August 25 and December 27;
- An estimated 7% decline in the number of secondary market transfers compared with 2014;
- A market "leader" (J.G. Wentworth, with an estimated 65-72% of the U.S. secondary structured settlement market) whose stock price has plummeted to $1.82 per share as of December 28, 2015 down from its historic high of $19.59 on February 28, 2014; and
- Judicial decisions such as In re: Rains, a Texas case enforcing a statutory "no-split" payment provision and establishing a new and extensive "best interest" precedent.
The successes included the proactive and collaborative legislative strategy developed by NASP and NSSTA to add five consumer protection amendments to targeted state structured settlement protection statutes. The first success resulted in amendments to the Illinois statute which LaBorde characterized as NASP's "biggest victory since the Model Act", because it overturned the result of the Brenston case and re-opened the Illinois secondary market,
Also during the NASP conference, Goodman and LaBorde jointly announced that Governor Scott Walker had signed, just prior to their panel discussion, Wisconsin's first Structured Settlement Protection Act - thereby becoming the 49th state (all except New Hampshire) to have enacted such protective legislation.
During his subsequent "Legislative Report", NASP Lobbyist Jack Kelly identified Florida, Maryland and Virginia among priority states for joint future lobbying to improve structured settlement consumer protection.
Continuing its priority of interactive judicial education about the structured settlement transfer process, NASP's 2015 Annual Conference again featured a judicial panel addressing such topics as:
- Interpreting the best interest standard;
- Common mistakes at transfer hearings by attorneys, factoring companies and sellers;
- How to best present a transfer;
- How judges consider objections to transfers;
- What documentation judges want to see at transfer hearings;
- How to best protect the seller's privacy;
- Information judges are not seeing presented that should be;
- Significance of the origin (type of personal injury) to the judge's analysis;
- Impact of prior transfers on assessments.
NSSTA has likewise initiated its own judicial education program about structured settlement transfers.