Beyond Structured Settlements

Need for Reform?

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:

• Re-thinking Structured Settlements
• Growing the Market
• Business Standards and Practices
• Settlement Planning
• Structured Settlements and Knowledge Management

SSP and NSSTA 2010 Annual Meetings - 9

The Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) should be congratulated - especially immediate past-Presidents Joseph Tombs and Daniel Durbin - for excellent 2010 annual meetings.

S2KM's complete coverage of the SSP and NSSTA 2010 annual meetings is available on S2KM's structured settlement wiki.

Continuing post-meeting S2KM commentary:

• Both the SSP and NSSTA 2010 meetings occurred in Washington, D.C. at nearby hotels during the same week - May 2-7.
• Attendance at both the SSP and NSSTA meetings was good (not great) - despite the economic downturn in structured settlements.
• Approximately 10 persons attended portions of both the SSP and NSSTA meetings.
• The scheduling conflicts between SSP and NSSTA occurred primarily on the morning of May 4 - which created difficult choices for persons attending both conferences.
• Unless otherwise indicated, S2KM's comments are limited to educational programs Patrick Hindert, S2KM's Managing Director, personally attended.
• For pre-program educational listings (topics and speakers) for both the SSP and NSSTA meetings, see this prior S2KM blog post.
• S2KM opted to attend NSSTA meetings on May 4 and missed valuable SSP presentations including two Medicare set-aside arrangement (MSA) panels organized by Jason Lazarus, SSP's new President for 2010-2011.
• Both SSP and NSSTA prioritized MSAs in 2010 with four MSA educational programs - three by SSP.
• Douglas Brand, a featured SSP speaker about MSAs, has also served as the key NSSTA Director in developing NSSTA's government benefits committee and educational program.
• Joseph Tombs, SSP's 2009-2010 President, and Director of SSP's settlement planning certification program, continued SSP's educational series about "Minors Settlements" initiated by Texas attorney Phillip McCrury during the SSP 2009 annual meeting.
• As positive hallmarks of their SSP and NSSTA presidencies, both Tombs and Durbin successfully played to their personal and association strengths. For Tombs, learning, improvement, and industry growth. For Durbin, public policy, lobbying, protect and preserve during industry transition.
• As SSP President, Joseph Tombs continued and elevated SSP's excellent educational programs, including the Registered Settlement Planner Program,which Tombs developed and manages in partnership with SSP and Texas Tech University.
• Jason Lazarus, a respected knowledge leader within multiple settlement consulting communities, succeeds Tombs as SSP's President.
• SSP's educational and political strategies continue to espouse "improve and grow" - for both the structured settlement and settlement planning industries.
• Daniel Durbin led NSSTA's leadership transition from Joseph Ricci to Eric Vaughn and Peter Arnold. During this transition, NSSTA sharpened and expanded its political focus and delivered on its promise to "protect and preserve" IRC sections 130 and 104(a)(2).
• Michael Kelly succeeds Durbin as NSSTA's 2010-11 President and will be joined on the NSSTA Board of Directors by five newly (re) - elected Directors - Joseph Barnet; Len Blonder; Randy Dyer; James Ebel; and John Machir.
• Karen Meyers continues her industry role as director of NSSTA's Certified Structured Settlement Consultant (CSSC) program in partnership with the University of Notre Dame.
• Among retiring NSSTA Directors, S2KM's Managing Director Patrick Hindert, a NSSTA member, has interacted primarily with former NSSTA Directors Joseph Shannon and Douglas Brand.
• Both Shannon and Brand (and all retiring NSSTA Directors) deserve industry thanks:
  
  • Shannon served as liaison between NSSTA's Board of Directors and NSSTA's legal committee.
  • Brand served as liaison between NSSTA's Board of Directors and NSSTA's government benefit committee.
• The SSP and NSSTA 2010 annual meetings highlighted the need for new Internet-based structured settlement educational strategies and resources.
• The combined SSP and NSSTA structured settlement learning experience was overwhelming. Incredibly rich structured settlement knowledge was crammed into less than 5 days without any announced (to date) knowledge capture and/or post-conference knowledge distribution.
• Except for NSSTA references to the new NSSTA website, neither SSP nor NSSTA offered any Internet educational ideas or discussions at their 2010 annual meetings.

Post-conference leadership questions:

• How will SSP's and NSSTA's new leaders respond to industry changes, challenges and opportunities?
• Who are the young (under age 40) structured settlement industry leaders?
• When and how will SSP and NSSTA transition their educational strategies to embrace the Internet?
• What shared interests exist between SSP and NSSTA to improve and grow the structured settlement industry?

SSP and NSSTA 2010 Annual Meetings - 3

Among several headlines resulting from the SSP and NSSTA 2010 Annual Meetings, "leadership changes" is most important.

The National Structured Settlement Trade Association (NSSTA) re-introduced its lobbyist, Eric Vaughn, as NSSTA's new Executive Director effective July 1, 2010. Vaughn follows Joseph Ricci of Smith Bucklin who succeeded Randy Dyer in 2008. NSSTA also named Peter Arnold, formerly NSSTA's marketing consultant, as Associate Executive Director. Hogan & Hartson (now Hogan Lovells) continues as NSSTA's legal counsel with Craig Ulman and John Stanton serving as primary legal advisers.

NSSTA elected five new members to its Board of Directors and introduced Michael Kelly as NSSTA's new President. The newly-elected NSSTA Directors are:

• Joseph Barnett
• Len Blonder
• Randy Dyer
• James Ebel
• John Machir

The Society of Settlement Planners (SSP) named Jason Lazarus as its President for 2010-2011 and Charles Schell as Vice President.

For additional S2KM reporting about SSP and NSSTA, see S2KM's structured settlement wiki and these earlier 2010 S2KM blog posts: 

• SSP and NSSTA 2010 Annual Meetings - 1 - for a complete list of speakers and topics;
• SSP and NSSTA 2010 Annual Meetings - 2 - for a preliminary S2KM strategic orientation.

NSSTA 2009 Annual Meeting - 1

To borrow a baseball analogy from Len Blonder, the National Structured Settlement Trade Association (NSSTA) "hit a home run" (or rather a series of home runs) during its 2009 Annual Meeting in Washington, D.C. April 28-May 1.

Blonder's comments to NSSTA attendees about "federal and state issues", which occurred near the end of an exceptional NSSTA program, served as a belated key note address for the entire NSSTA program.

Blonder was one of three NSSTA past-Presidents, along with Henry Strong and Chris Diamantis, whom NSSTA, and new NSSTA President Daniel Durbin, honored during its meeting.

Blonder, a two-time NSSTA President who continues to co-chair NSSTA's Legislation and Regulation Committee, spoke passionately about baseball and structured settlements. Blonder traced his involvement in structured settlements to the late 1970s when he helped organize a pre-NSSTA political coalition which formulated, and eventually helped to enact, the original structured settlement tax legislation in 1982.

With support from Blonder and its Legislation and Regulation Committee, NSSTA announced and introduced a new "D.C. two-step" political strategy: move one-step backward before moving two or more steps forward.

NSSTA's backward step:

• Re-focus on "protecting, preserving and promoting" structured settlement laws already enacted in the United States Internal Revenue Code and 47 state structured settlement protection statutes;
• Consolidate and transition NSSTA's administrative, financial and political strengths.

NSSTA's forward steps:

• Continue enhanced education about Medicaid and Medicare as cornerstones for growing the structured settlement market;
• Continue to define NSSTA's Internet strategy and online voice.

NSSTA's strengths were displayed during the 2009 Annual Meeting.

• Joseph Ricci, NSSTA's new Executive Director, summarized improvements in NSSTA governance.
• NSSTA announced:
  
  • New NSSTA voting bylaws;
  • Election of new Directors Betty Gregware and Daniel Finn; plus
  • A new NSSTA Channel on YouTube.
• NSSTA's program featured presentations from:
  • NSSTA lobbyist Eric Vaughn;
  • NSSTA marketing consultant Peter Arnold; and
  • NSSTA General Counsel Hogan & Hartson partner Craig Ulman.
• In addition to his "Washington Report" Vaughn organized an impressive delegation of congressional speakers for NSSTA:
  
  • Senator Richard Durbin (D) from Illinois;
  • Senator Charles Grassley (R) from Iowa;
  • Congressman Charles Rangle (D) from New York;
  • Congressman James Langevin (D) from Rhode Island;
  • Congressman Joseph Crowley (D) from New York;
  • Congressman Dave Camp (R) from Michigan;
  • Congressman Brian Higgins (D) from New York;
  • Congresswoman Allyson Schwartz (D) from Pennsylvania;
  • Congressman Joseph Courtney (D) from Connecticut;
  • Plus the Chiefs of Staff for four congressmen.

Among the political speakers, Senator Durbin, uncle of NSSTA President Daniel Durbin, was the most focused on structured settlement issues. Senator Durbin promised to:

• Support IRC sections 104(a)(2) and 130;
• Address structured settlement secondary market advertising as part of his proposed Financial Product Safety Commission.

Ricci, Vaughn and NSSTAPAC Chairman Brad Cantwell complemented NSSTA congressional presentations with a NSSTAPAC status report.

In addition to the congressional speakers, NSSTA's educational program featured exceptional structured settlement and settlement planning presentations:

• Industry Update and Looking Forward - Transitioning NSSTA Presidents Chris Diamantis and Dan Durbin offered their strategic analyses;
• "All Things Considered" - NSSTA's legal committee has upgraded the quality and scope of its educational contributions:
  
  • Michael Miller summarized Spencer v. Hartford;
  • Ilana Hanau spoke about the Fresno County factoring cases;
  • Craig Ulman re-introduced "Exemption of Structured Settlement Payments" as a sales and marketing enhancement to help grow structured settlements.
• Medicare and Medicaid - NSSTA's government benefits committee sponsored two panel discussions.
  
  • Roy Franco, Mark Popolizio, David Korch and Rafael Gonzalez spoke about Medicare and structured settlements;
  • John McCulloch, Timothy O'Driscoll and Dennis Mc Andrews spoke about Medicaid and structured settlements.

• 35W Bridge Collapse - Jerry Lothrop summarized structured settlement results and lessons learned from the Minnesota August 1, 2007 bridge collapse.
• Financial Strength Ratings - William Pargeans of A.M. Best emphasized strong fixed annuity sales trends despite low interest rates;
• Ethics - Mike Jones continued a revitalized NSSTA priority:
  • Asking the NSSTA audience: "why be ethical?" and
  • Challenging the NSSTA audience to identify and support ethical leaders within the structured settlement industry.

Congratulations to NSSTA for an outstanding 2009 annual meeting in Washington, D.C. Future S2KM blog posts will offer commentary.

For S2KM reports about prior NSSTA meetings, see S2KM's structured settlement wiki.