Prior S2KM blog posts about the NASP 2008 Annual Meeting:
- NASP 2008 Annual Meeting - 1
- Summarizes the NASP presentations which S2KM attended;
- Highlights the questions S2KM addressed to NASP's structured settlement panel.
- NASP 2008 Annual Meeting - 2
- Re-introduces the NASP structured settlement panelists;
- Re-confirms the panel structured settlement topic;
- Provides links to recommended learning resources;
- Outlines S2KM's summary format;
- Highlights the underlying issues.
This S2KM blog post summarizes, from the moderator's perspective and notes, the structured settlement panel discussion titled "How to Improve and Grow the Structured Settlement Market" which occurred October 24, 2008 at the NASP 2008 Annual Meeting.
The NASP structured settlement panel featured:
- Jack Meligan, President of Settlement Professionals, Inc.;
- Michael Upchurch, President of Delta Settlement Solutions; and
- Matthew Bracy, General Counsel of Settlement Capital Corporation.
S2KM's Panel Discussion Summary
Issue 1: Are settlement transfers (as defined by IRC 5891 and the state protection statutes) good or bad for the structured settlement industry?
As settlement planners, both Meligan and Upchurch described their view of the secondary market as a "mixed-bag" of bad and good. The "bad" part of factoring results from non-professional ("cash now") advertisements promoted by many factoring companies. Such advertisements (characterized as "Jerry Springer-type" commercials) are unprofessional and damage settlement planners' relationships with plaintiff attorneys and reduce structured settlement sales.
Not only do plaintiff attorneys dislike "cash now" advertisements, they are also less likely to recommend structured settlements if they believe their clients will eventually sell their payment rights. They recognize and disapprove of the temptations created by such advertising. Meligan and Upchurch both predicted continued negativity toward the secondary market from the primary market so long as factoring companies continue such advertising.
The potential liquidity provided by settlement transfers, however, improves the structured settlement annuity product. Lives change. Unexpected events occur. Even the best personal injury settlement plans need to be reviewed post-settlement and sometimes adjusted. Settlement transfers, which must be reviewed and approved by state judges, are appropriate in some cases.
Many of the problems requiring settlement transfers result from high-pressure sales and over-structuring by defense brokers. Whenever factoring companies receive a serious transfer inquiry from a structured settlement recipient, Upchurch and Meligan urged factoring companies to recommend contacting a settlement planner. Settlement planners can help advise structured settlement recipients about alternative financial options and strategies.
Settlement planners have a choice whether or not to seek compensation for post-settlement transfer advice to existing structured settlement recipients. The decision may depend upon whether the settlement planner was the agent of record for the original structured settlement annuity purchase. In most states, compensation options for settlement planners include fees for serving as "independent financial advisors" in settlement transfer cases.
Summarizing the secondary market perspective, Bracy highlighted the "symbiotic relationship" between the primary and secondary market resulting from IRC 5891 and the state structured settlement protection statutes. Bracy emphasized the need for well-educated plaintiffs and plaintiff attorneys - as well as judges. He noted that many primary market participants have ignored the settlement transfer business. Bracy acknowledged that good and bad business practices exist in the secondary market as well as the primary market. According to Bracy, the potential secondary structured settlement represents between 5% and 7% of the total primary market. Most structured settlement cases neither require nor qualify for a settlement transfer.
Members of the audience, primarily settlement transfer attorneys and factoring executives, supported Bracy's viewpoint. More than one attorney echoed Bracy's observation that primary market participants have failed to communicate with their customers post-settlement. Why should the primary market complain when they fail to positively and proactively address their customers' financial needs post-settlement? Another attorney criticized the primary market generally for its continuing vilification of the secondary market. Still another stated that only the criticisms and bad results get publicized - while the thousands of successful settlement transfers and satisfied secondary market customers are ignored.
Issue 2: What is the future of the structured settlements industry?
Despite the current financial crisis, both Meligan and Upchurch said they are "bullish" about the future of the structured settlement industry. They each expressed confidence in the overall financial strength of the structured settlement annuity providers. They predicted a "Golden Age" for structured settlements based upon a settlement planning model as opposed to the traditional claim management model. Bracy summarized how the current capital markets are hurting both the secondary and the primary markets. As one result of the tight capital markets, he predicted higher discount rates for settlement transfers in the immediate future.
Issue 3: How can the primary and secondary structured settlement markets collaborate to improve and grow the structured settlement market?
Both Meligan and Upchurch emphasized:
- Secondary market companies must stop non-professional ("cash now") advertising. Note: one factoring company executive stated privately that he plans to review his company's advertising based upon comments by Meligan and Upchurch.
- Plaintiff attorneys and injury victims must be represented by settlement planners including representation for secondary market issues and options.
All panelists thought continuing communication between the primary and secondary markets would be positive for the future of the structured settlement industry. To grow the structured settlement market, primary and secondary market leaders need to cooperate. One panelist mentioned Medicare and Medicaid rules as collaboration opportunities. The panelists agreed upon the need to develop best practices for both the primary and secondary structured settlement markets.
For additional S2KM reporting about NASP, see S2KM's structured settlement wiki.
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