Beyond Structured Settlements

J.G. Wentworth Survey - 4

Three prior S2KM blog posts:

• Introduced the J.G. Wentworth (JGW) 2008 structured settlement survey;
• Summarized other related and recent structured settlement reports and surveys; and
• Identified the nine (9) JGW survey questions JGW has given S2KM permission to publish.

This S2KM blog post summarizes responses to five JGW survey questions directly related to the primary structured settlement market. A subsequent S2KM blog post will summarize responses to four JGW survey questions about the secondary structured settlement market.

According to Ken Murray, JGW's chief marketing officer, the JGW structured settlement survey resulted from recommendations made during the 2008 Structured Settlement Thought Leadership Conference. The JGW survey included 115 structured settlement recipients who have sold some or all of their structured settlement payment rights to JGW.  Not all survey participants responded to all questions.

JGW Primary Market Survey Questions

• Question 1: How many years ago did you settle your original lawsuit?
• Question 2: When you settled your original lawsuit, why did you accept payments over time rather than a single lump sum of cash?
• Question 3: How satisfied are you that you accepted a structured settlement?
• Question 4: Do you wish you and your attorney had negotiated for a single lump sum settlement?
• Question 5: When you settled your original lawsuit, how well informed were you about structured settlements?

Question 1: How many years ago did you settle your original lawsuit?

Responses:

• More than 10 years ago - 70.9%
• 5 to 10 years ago - 14.5%
• 1 to 5 years ago - 13.6%
• Past 12 months - 0.9%

S2KM comments:

• Based upon industry estimates, "Structured Settlements and Periodic Payment Judgments" (S2P2J) reports approximately $107 billion of structured settlement annuity premium from 1976 to 2007.
• Of this $107 billion, $54.3 billion (approximately 51%) was produced during the past 10 years (1998 to 2007) and $52.4 billion (approximately 49%) was produced during the prior 22 years (1976 to 1997).
• Industry sources report that $4.4 billion of structured settlement annuity premium has been produced during the first nine months of 2008 for an estimated $111 of historical structured settlement annuity premium.
• Transfers of structured settlement payment rights began in the late 1980s. IRC section 5891 was enacted in 2002. 46 states have enacted structured settlement protection statutes.
• Various sources have provided S2KM with estimates of historical structured settlement transfers ranging between 2% ($2.2 billion) and 6% ($6.6 billion) of historical structured settlement premium ($111 billion) as measured by payments made by transfer (factoring) companies to original structured settlement recipients.
• The responses to this JGW survey question conflict with one study by one structured settlement annuity provider released privately in 2008. This annuity provider reported at the National Settlement Consultants (NSC) 2008 Annual Meeting that most transfers of its structured settlement annuities occur during the first 10 years following origination.

Question 2: When you settled your original lawsuit, why did you accept payments over time rather than a single lump sum of cash?

Responses:

• Due to status as a minor, structured settlement considered best option - 38.3%
• Lump sum was not offered - 23.4%
• Payments over time seemed like a better deal - 23.4%
• Not sure I could manage a large amount of cash - 7.4%
• To pay future medical expenses or special needs - 6.4%
• Faster way to settle - 1.1%

S2KM comments:

• In response to this question, 61.7% of the structured settlement recipients in JGW's survey said they never were given a lump sum option.
• 38.3% of those structured settlement recipients were minors whose settlements presumably were approved and/or selected by judges and guardians. An additional 23.4% of the structured settlement survey respondents (presumably not minors) stated they were not offered a lump sum alternative to a structured settlement.
• Only 38.3% of the JGW survey respondents (23.4% + 7.4% + 6.4% + 1.1%) identified a positive reason for accepting a structured settlement.
• Compare these JGW results with the results of a structured settlement survey sponsored by NSSTA in 2006.
• As reported by Joseph Costello at NSSTA's 2007 Winter Meeting and 2007 Annual Meeting, 95% of the attorneys NSSTA surveyed in 2006 said they are proponents of structured settlements.
• And yet, as also reported by Costello, NSSTA's study found that only 7% of personal injury settlements between $75,000 and $100,000 include structured settlements; and only 30% of personal injury settlements above $1 million include structured settlements.
• Based upon a 2002 Towers Perrin "best estimate" of U.S. tort cost categories and percentages applied to the results of Towers Perrin's study of 2006 U.S. tort costs, $161 billion (65%) of 2006 U.S. tort costs represented payments to injury victims and their attorneys.

Question 3: How satisfied are you that you accepted a structured settlement?

Responses:

• As a minor, a structured settlement was considered the best option - 25.0%
• Mostly satisfied - 24.1%
• Neither satisfied nor dissatisfied - 21.3%
• Completely satisfied - 18.5%
• Slightly dissatisfied - 6.5%
• Completely dissatisfied - 4.6%

S2KM comments:

• 42.6% of JGW's survey respondents said they were "completely satisfied" (18.5%) or "mostly satisfied" (24.1%) that they accepted a structured settlement.
• 46.3% either stated they were not satisfied or dissatisfied (21.3%) or they were minors (25%) for whom courts and guardians selected a structured settlement.
• 11.1% stated they were either slightly dissatisfied (6.5%) or completely dissatisfied (4.6%) with their structured settlement.
• Note: 100% of the JGW survey respondents have sold some or all of their structured settlement payment rights to JGW.
• By comparison, the NSSTA survey found 75% of its survey respondents who received structured settlements said they were very happy their settlement included structured settlement annuities. The same percentage (75%) said they would recommend a structured settlement.

Question 4: Do you wish you and your attorney had negotiated for a single lump sum settlement?

Responses:

• No - 31.5%
• As a minor, I was unable to negotiate my settlement terms - 27.8%
• Maybe - 20.4%
• Yes - 10.2%
• I don't know - 10.2%

S2KM comments:

• 31.5% of the JGW survey respondents (all of whom have previously sold payment rights to JGW) expressed no second or negative thoughts about their decision to negotiate a structured settlment instead of a lump sum settlement.
• 27.8% of the respondents, as minors, were unable to negotiate their own settlement terms - but subsequently decided to sell some or all of their payment rights to JGW.
• 40.8% of the respondents express regrets or uncertainty about structured settlements without any positive endorsement of structured settlements.
• Among the important structured settlement issues the JGW survey highlights are structured settlements for minors. More than 25% of the JGW survey respondents are minors who did not personally negotiate their own settlements.

Question 5: When you settled your original lawsuit, how well informed were you about structured settlements?

Responses:

• Due to my status as a minor, I was not informed - 30.5%
• Very well informed - 27.6%
• Not well informed - 24.8%
• Well informed but still had questions post-settlement - 17.1%

S2KM comments:

• Only 27.6% of the respondents to JGW's survey believe they were "very well informed" about structured settlements when they settled their lawsuits.
• 30.5% said they were minors when their case was settled meaning they did not personally approve their own settlement. Questions: what information about structured settlements does the industry provide to minor recipients of structured settlements when they attain their age of majority? Should every minor structured settlement recipient be allowed to sell his or her payment rights when they reach the age of majority? Why not?
• 41.9% reported an inadequate education about structured settlements.
• Compare the JGW survey results with these results from the NSSTA survey: 65% of injury victim respondents to the NSSTA survey said they had not heard about structured settlements prior to settlement; most injury victim respondents to the NSSTA survey were uncertain whether a structured settlement consultant was involved with their case; only 34% recalled receiving educational information; 75% of this 34% who recalled receiving structured settlement educational information said the information was helpful; 66% of the injury victim respondents first learned about structured settlements from their trial attorney; 95% of the attorneys NSSTA surveyed said they are proponents of structured settlements.

In a subsequent S2KM blog post, S2KM will summarize responses to four JGW survey questions about structured settlement transfer decisions.

J.G. Wentworth Survey - 3

Two prior S2KM blog posts:

• Introduced the J.G. Wentworth (JGW) 2008 structured settlement survey; and
• Summarized other related and recent structured settlement reports and surveys.

This S2KM blog post publishes the nine (9) JGW survey questions JGW has given S2KM permission to publish. These JGW survey questions address structured settlement industry issues - for both the primary and secondary markets.

S2KM has reviewed the results of additional JGW structured settlement survey questions (14 questions out of 23 total). These JGW survey questions address J.G. Wentworth's products and services. S2KM has neither requested nor received permission from JGW to publish these additional survey questions and results.

S2KM introductory comments:

• In publishing JGW survey questions and results, S2KM has altered the order of JGW's survey questions and responses as reported to S2KM - but not the questions or responses themselves. S2KM's purpose: to better present and highlight those JGW survey questions and results S2KM believes are most important for the structured settlement and settlement planning industries.
• 115 persons participated in the JGW survey. Not all participants answered every question.
• All JGW survey participants were structured settlement recipients who have sold some or all of their payment rights to JGW through state court approved structured settlement transfers pursuant to IRC section 5891 and one of the 46 state structured settlement protection statutes.

JGW Primary Market Survey Questions

• How many years ago did you settle your original lawsuit?
• When you settled your original lawsuit, why did you accept payments over time rather than a single lump sum of cash?
• How satisfied are you that you accepted a structured settlement?
• Do you wish you and your attorney had negotiated for a single lump sum settlement?
• When you settled your original lawsuit, how well informed were you about structured settlements?

JGW Secondary Market Survey Questions

• Why did you sell all or part of your structured settlement?
• Did selling your structured settlement help solve your financial problem?
• Would you sell payments again?
• If you sold only part of your settlement, do you plan to keep the rest of your payments as a structured settlement?

Additional S2KM comments about the JGW survey:

• The JGW structured settlement survey differs significantly from other recent structured settlement surveys sponsored by NSSTA and AIG. For S2KM summaries of these other structured settlement surveys, see S2KM's earlier blog post titled "Structured Settlement Surveys".
• As of November 28, 2008, neither JGW nor NSSTA have published their structured settlement survey results online. AIG has reported the results of the AIG sponsored survey on the AIG website.
• Towers Perrin has recently reported updated results (2008 update) for Tower Perrin's continuing study of U.S. tort costs on the Towers Perrin website. S2KM has summarized the results of Tower Perrin's 2007 update in this S2KM blog post.
• JGW conducted its own survey. NSSTA and AIG retained outside resources to conduct their surveys.
• JGW, NSSTA and AIG each appear to have utilized Internet communications as part of their surveys.
• JGW's survey participants are all structured settlement recipients who have sold structure settlement payment rights to JGW.
• JGW's survey does not include attorneys for structured settlement recipients or lump sum recipients.
• By comparison, NSSTA's survey includes some attorneys and structured settlement recipients as well as lump sum settlement recipients. NSSTA has not indicated whether any of its survey participants have sold structured settlement payment rights.
• AIG's survey is more hypothetical and does not confirm whether any respondents have sold structured settlement payment rights.

S2KM comments about the JGW survey questions:

• JGW's survey includes questions related to both primary structured settlements and secondary market transfers.
• By comparison, neither the NSSTA survey nor the AIG survey ask any questions about structured settlement liquidity features or secondary market transfers.
• JGW's survey focuses upon the reasons 115 structured settlement recipients: 1) agreed to a structured settlement; and 2) subsequently sold (transferred) some or all of their structured settlement payment rights.
• In addition, JGW's survey asks these 115 structured settlement recipients to evaluate retrospectively the results of both transactions.

S2KM will publish and analyze responses to JGW's 2008 structured settlement survey in subsequent blog posts.

Structured Settlement Surveys

A prior S2KM blog post (J.G. Wentworth Structured Settlement Survey) introduces the J.G. Wentworth structured settlement survey and highlights other market reports and surveys important for "Growing the Structured Settlement Market".

These prior reports and surveys include:

• Market analysis by Towers Perrin titled "2007 Update on U.S. Tort Cost Trends"
• NSSTA 2006 Survey - as summarized by Joseph Costello at the NSSTA 2007 Winter Meeting and the NSSTA 2007 Annual Meeting;
• AIG 2007 Survey - as reported by AIG on the AIG website.

S2KM's summary of these three structured settlement marketing reports follows. The purpose of this S2KM summary is to provide context and perspective for S2KM's summary of J.G. Wentworth's more recent structured settlement survey. S2KM's review and analysis of the J.G. Wentworth survey will appear in subsequent S2KM blog posts.

Towers Perrin Study

• Reports $247 billion of 2006 U.S. tort costs.
• Does not address structured settlements or any other settlement planning products;
• Does not address the secondary structured settlement market;
• Consists of three components: 1) losses paid to third parties; 2) defense costs; and 3) administrative expenses.
• Calculates tort costs resulting from five insured plus uninsured business lines: 1) commercial multi-peril; 2) medical malpractice; 3) product liability; 4) other liability; and 5) commercial auto;
• Study excludes: 1) no-fault auto insurance; 2) property coverages; 3) workers compensation; 4) certain extraordinary (one time) costs - example: tobacco litigation.
• S2KM Note 1: a 2002 Towers Perrin study translated overall tort costs in 2001 into these additional cost categories and percentages: 1) administrative costs - 21%; 2) defense costs - 14%; 3) plaintiff attorneys -19%; 4) econcomic loss - 22%; and 5) non-economic loss - 24%.
• S2KM Note 2: Towers Perrin discontinued this portion of its analysis in 2002. It was "devilishly difficult" according to Russ Sutter, a Tillinghast principal and actuary who directs the Towers Perrin study, "primarily because we lack reliable information from plaintiff attorneys". The percentages represented Tillinghast's "best estimate" in 2002.
• S2KM assumption: for lack of more reliable estimates of tort cost payment categories and percentages, S2KM will use Tillinghast's "best estimate" in 2002 for 2001. The results for 2006 would be approximately: 1) $161 billion (65%) of 2006 U.S. tort costs represented payments to injury victims and their attorneys; and 2) $86 billion (35%) represented defense and administrative costs.

The NSSTA Survey

• Was never published online and never distributed to NSSTA members.
• S2KM is a NSSTA member. This S2KM summary is based upon S2KM's typewritten notes from the NSSTA 2007 Winter Meeting and the NSSTA 2007 Annual Meeting.
• The NSSTA-sponsored survey is titled: "A Study of the Structured Settlement Process Conducted on behalf of the National Structured Settlement Trade Association".
• The NSSTA survey was directed by Robert E. Hoyt, the Dudley L. Moore, Jr. Chair of Insurance at the Terry College of Business at the University of Georgia.
• The NSSTA survey consisted of attorneys involved in structured settlements (43 telephone surveys) and structured settlement recipients (1275 telephone and Internet surveys).
• As reported by Joseph Costello at NSSTA's 2007 Winter Meeting and 2007 Annual Meeting, only 7% of personal injury settlements between $75,000 and $100,000 include structured settlements; and only 30% of personal injury settlements above $1 million include structured settlements.
• The NSSTA attorney survey results include the following responses to the question: "Whom do you prefer to use for purposes of financial planning for your clients?" The results: Trust company/department - 30%; Financial planner - 28%; Structured settlement consultant - 23%; No response - 19%.
• Additional attorney responses: 95% of the attorneys surveyed said they are proponents of structured settlements; 70% of the attorneys said they retain a structured settlement consultant at least for some cases; 93% of the attorneys are satisfied with their structured settlement consultant; 50% want to learn more about structured settlements; 75% said financial strength was the most important consideration in recommending annuity providers; 88% said they were aware they could structure their fees.
• Injury victim responses: 65% said they had not heard about structured settlements prior to settlement; most injury victim respondents were uncertain whether a structured settlement consultant was involved with their case; 34% recalled receiving educational information; 75% of this 34% who recalled receiving structured settlement educational information said the information was helpful; 66% of the injury victim respondents first learned about structured settlements from their trial attorney; 75% said they were very happy their settlement included structured settlement annuities; 75% of the injury victim respondents said they would recommend a structured settlement.
• The NSSTA survey did not include any questions about the secondary structured settlement annuity market.

The AIG Survey

• The AIG survey was sponsored by AIG American General Structured Settlements and conducted by Esearch.com, Inc. in September 2007.
• The AIG survey included 1000 U.S. participants - 80% had no connection with any personal injury case; 20% had previously been involved directly or indirectly through a family member in a personal injury case.
• Accuracy: AIG claims its survey has a margin of error of plus or minus 3.10 percent at a 95% level of confidence.
  
• AIG's conclusion: the structured settlement industry needs to educate Americans about structured settlements.
  
• AIG survey procedure: respondents who had no connection to a personal injury case were asked to read two hypothetical scenarios and answer questions on how they would react.Those with a direct connection to a personal injury case were not only asked to read the hypothetical scenarios, but also to answer questions based upon their real life experience.
• In AIG's first survey hypothetical, AIG provides no information about structured settlements. Results: 65% of respondents said they would elect a lump sum of which 49% said they believed they could make their own long term decisions and 26% said the lump sum was more appropriate to pay bills and pay off debt.
  
• In AIG's second survey hypothetical, AIG provided survey respondents with information about structured settlements - presumably this "AIG Backgrounder" which AIG features on its website. Results: 73% of respondents said they would elect a structured settlement.
  
• 206 of 1000 participants said they or their family had been involved with a personal injury case. Of the 206, 86% had elected lump sum; 57% said they were unaware of structured settlements; 64% said their attorneys did not inform them about structured settlements; 57% of those that elected a lump sum said their settlement funds were already depleted; 71% of respondents who said they favored a structured settlement did so "to provide a regimented stream of income designed to cover expenses".
• The AIG structured settlement survey did not include any questions or information about the secondary structured settlement market.

J.G. Wentworth Structured Settlement Survey

"Listen to the customer - a novel idea wouldn’t you say?" That was advice from Randy Snow for the structured settlement industry in Randy's August 2008 Interview with S2KM about industry transition and growth.

Only recently has the structured settlement industry begun to "listen to the customer" - the structured settlement recipient - in an organized, professional manner focused on industry improvement and growth.

S2KM previously reported two structured settlement surveys announced at meetings of the National Structured Settlement Trade Association (NSSTA):

• NSSTA 2006 Survey - as summarized by Joseph Costello at the NSSTA 2007 Winter Meeting; and
• AIG 2007 Survey - as summarized by J.P. Steele at the NSSTA 2008 Annual Meeting.

Both of these surveys focus on injury victims, their attorneys and structured settlements.

S2KM has also summarized:

• Market analysis by Towers Perrin titled "2007 Update on U.S. Tort Cost Trends" as part of S2KM's series titled "Growing the Structured Settlement Market; and
• Leadership conference organized by J.G. Wentworth titled "Structured Settlement Thought Leadership Conference"

J.G. Wentworth recently conducted a survey of structured settlement recipients who had previously sold some or all of their structured settlement payment rights to J.G. Wentworth. 115 persons participated.

J. G. Wentworth published a press release announcing survey results on October 29, 2008 and distributed a media report on November 5, 2008. According to Ken Murray, J.G. Wentworth's Chief Marketing Officer, the survey resulted from recommendations made at the 2008 Structured Settlement Thought Leadership Conference which J.G. Wentworth helped to organize.

S2KM received copies of both the press release and the media report. S2KM also requested and received permission from J.G. Wentworth to review, and write about publicly, some of the structured settlement survey questions and responses.

In subsequent blog posts, S2KM will:

• Report J.G. Wentworth survey questions and responses; and
• Discuss what the responses mean for the future of structured settlements.

S2P2J Release 44

Release 44 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) will be available in December 2008.

Since S2P2J was first published in 1986, the authors have attempted to provide balanced and comprehensive coverage of structured settlement industry developments from a legal perspective.

S2P2J's co-authors, Daniel Hindert, Joseph Jules Dehner and Patrick Hindert have each studied, worked and written about structured settlements since the 1970s.

S2P2J's authors thank and acknowledge information and insights they continue to receive from many structured settlement trade associations and industry knowledge leaders. Special thanks to the National Structured Settlement Trade Association (NSSTA) Legal, Government Benefits and Certification Committees; and, more recently, to the Society of Settlement Planners (SSP). The authors appreciate and welcome your continuing contributions to S2P2J.

For S2KM reports about NSSTA, SSP and other professional structured settlement stakeholder associations, see S2KM's structured settlement wiki.

Since 2001, the authors have added two new chapters to S2P2J:

• Chapter 15: "Government Benefits and Structured Settlements"; and
• Chapter 16: "Transfers of Structured Settlement Payment Rights".

These new S2P2J chapters capture, organize and explain some of the strategic changes re-defining traditional (pre-2001) structured settlements. Release 44 features updates for both chapters.

S2P2J Release 44 also features new and updated sections titled:

• Section 3.07A: "Settlement Trusts"; and
• Section 6.02: "Structured Settlement Consultants".

All of these new chapters and sections re-enforce the growing "settlement planning" context for structured settlements.

The emerging profession of settlement planning:

• Increases the importance and complexity of structured settlements;
• Expands the knowledge requirements for structured settlement professionals;
• Encompasses non-qualified assignments and the secondary structured settlement market; and
• Integrates structured settlement annuities with government benefits, settlement trusts and custodial accounts.

S2P2J Release 44 updates structured settlement and settlement planning professionals about these continuing industry changes and developments. In addition to the new chapters and sections highlighted above, S2P2J Release 44 features updated commentary for:

• Non-qualified assignments;
• Punitive vs. compensatory tax allocations;
• The Murphy case;
• Frank Johns' proposed RFP for QSFs;
• The Medicare, Medicaid & SCHIP Extension Act of 2007 (MMSEA);
• New CMS rules for WCMSA annuities;
• The AIG bailout;
• The Fresno County factoring cases.

To order your updated copy of S2P2J, see this link. NSSTA members and SSP members receive purchasing discounts for S2P2J.

NSSTA 2008 Fall Meeting - 3

S2KM's two previous blog posts about the NSSTA 2008 Fall Meeting recommended:

• Current structured settlement industry leaders should focus on "transitional leadership" .
• Transitional industry leaders should promote settlement planning as a successor business model for the traditional claim management structured settlement business model. 

This S2KM blog post highlights industry issues the next generation of structured settlement leaders will need to address:

• Transparency - For the structured settlement market to improve and grow, strategic discussions must be open and online. Key components of the structured settlement transaction must become transparent. Transactional transparency must feature compensation disclosure and recipients' informed consent.
• Public policy - The structured settlement industry needs to re-examine and re-define structured settlement public policy taking into consideration IRC 468B, IRC 5891, HIPAA and the state protection statutes - as well as other related government benefits such as Medicare (set-aides) and Medicaid (special needs trusts).
• Business model - What are the differences between a claim management model (AIG; DOJ) and a settlement planning model (still being defined and developed)?
• Funding model - The historic industry model is the IRC section 130 Qualified Assignment. The future settlement planning model includes IRC 130 Qualified Assignments - but also Qualified IRC 468B settlement funds, special needs trusts, Medicare set-aside arrangements, and settlement transfers.
• Product development - Where are the new products?  Why remain a one product industry? Traditional structured settlement leaders oppose settlement planning product development. They oppose 468B, settlement transfers and proposals for tax-free disability accounts - at least when such proposed tax-free accounts compete with structured settlement annuities.
• Educational model - to maintain continuing relevance and value, the current structured settlement educational model (including certification) must successfully transition to web 2.0 tools and learning technologies.
• Business standards - The next generation of industry leaders should study the AIG structured settlement model and AIG structured settlement standards as one example of a failed claim management model. Review also: SSP's recently published settlement planning business standards, NAELA's aspirational standards and the ABA's Model Rules for Professional Conduct. New leaders should shine a light on the DOJ's structured settlement program. Challenge the DOJ to justify its structured settlement program in the context of structured settlement public policy and public administrative costs and cost savings.
• Legislative model - To rally its constituency, the structured settlement "old guard" continues to rely upon the IRC 130 tax-reform bogeyman and the "bloody factoring flag" - looking backwards with nostalgia at the structured settlement world as it existed before the old guard "lost" the structured settlement transfer war of 2001. New structured settlement leaders should focus on the future of structured settlements -  improvement and growth taking account for the reality and importance of the secondary market. Use and promote 468B as your primary (standard) settlement planning mechanism. Focus on successfully integrating structured settlements with Medicare, Medicaid, Veterans benefits, and public housing. Use existing state structured settlement protection statutes to raise business standards for both the primary and secondary markets. Pay attention to how many ways state legislation and regulations increasingly impact structured settlements.
• Regulatory model - The structured settlement industry needs a regulatory strategy and model as much as a legislative strategy and model. Develop relationships and strategies with NAIC; NCOIL; NOLGA; CMS; SSA; IRS - in collaboration with other related professional stakeholder associations:  NSSTA, SSP, AAJ, NASP, NAELA, NAMSAP, ASNP and SNA plus disability associations such as AAPD.

S2KM prediction: 80% of the 2014 structured settlement leaders (Association Directors; Committee Chairpersons; regional and online meeting attendees) are not currently active members of either NSSTA or SSP.