Why should defendants or liability insurers ever agree to settle a personal injury case using a structured settlement?
Although this question may seem counter intuitive to current structured settlement stakeholders, it represented a fundamental issue when structured settlements were introduced in the late 1970s and early 1980s.
The historic sales rationale for defendants and liability insurers to endorse, promote and fund structured settlements:
- Studies show 9 out of 10 lump sum recipients "squander" their entire settlement within five years.
- Structured settlements enable recipients to live free of public benefits.
- Structured settlements reduce claim costs.
- Structured settlements help defendants settle cases that would otherwise go to trial.
- Structured settlements represent good public policy.
Although still marketed by some sales persons, the first two justifications for defendants and liability insurers to promote and fund structured settlements have been exposed as "myths" by Jeremy Babener and David Lillesand respectively. No studies exist that show 9 of 10 lump sum recipients dissipate their lump sums within five years. Worse, frequent use of the pejorative term "squander" in the context of this dissipation study myth attaches an unfair and unwarranted stigma to injury victims. Even assuming injury victims dissipate lump sums, the reasons could be as varied as payment for justifiable expenses with inadequate settlements (compared with actual lost wages, medical expenses and inflation) or pay down strategies to qualify for Medicaid.
The idea that seriously injured structured settlement recipients can survive without public benefits is nonsense - a Tea Party pipe dream. At least prior to health care reform, no insurance company would offer medical insurance at any price for brain damaged babies, serious burn victims, or quadriplegics. Medicaid represents the only medical insurance available for seriously injured (special needs) claimants whether they settle with a lump sum or a structured settlement. As underscored by Lillesand, "without Medicaid, seriously injured accident victims die" because they cannot gain access to our medical system without an insurance card. Completely contrary to this public benefit myth, how best to integrate structured settlements with Medicaid and Medicare represents an increasingly important focus for personal injury settlement planning.
Based upon the above sales rationale, however, most U.S. liability insurers and self-insured defendants have developed structured settlement programs. According to a 2011 "National Litigation Management study" commissioned by the Council on Litigation Management (Litigation Management Study), structured settlement represents the "most penetrated external initiative" among 30 litigation-related service areas analyzed based upon interviews with leading litigation management executives.
Many structured settlement programs endorsed and promoted by liability insurers and self-insured defendants (defense structured settlement programs) share certain common characteristics including:
- Approved lists of annuity providers (life companies).
- Approved "brokers" who also serve as agents for the approved life companies.
- Proactive case identification of "good candidates" for structured settlements.
- "Early involvement" by the defense structured settlement broker.
- Defense broker attendance and participation at negotiations and mediations.
- Structured settlement funding by defendants or their liability insurers utilizing annuity financing ("buy and hold') or qualified assignments.
Some defense structured settlement programs also feature:
- Defense funding utilizing an affiliated annuity provider;
- Commission sharing by the defense broker with the defendant or liability insurer. Note: such commission sharing generally utilizes a life insurance agency affiliated with the defendant or liability insurer and may or may not be disclosed to injury victims, their attorneys, mediators and/or judges.
The National Litigation Management Study also found that "litigation executives are not happy with the metrics and analytics available to them." When asked "how effective are your metrics in measuring the effectiveness of your litigation program", more than 74 percent of the study's participants rated their available metrics as "Fair" or worse. In the words of Mike Saltman, President of Esquire Corporate Solutions: "to be truly successful, national service programs must be able to deliver the very metrics and analytics that participants said they are seeking: quality, performance, and satisfaction levels. These are the metrics that a national service provider must be able to give to its clients in today's environment."
Many defense structured settlement programs do include performance metrics of which the most common are:
- Annuity premium generated by the structured settlement program; and
- Success ratio - the percentage of targeted structured settlement cases that ultimately settle with a structured settlement.
- Note: some defense structured settlement programs also attempt to measure the cost savings resulting from the use of structured settlements.
Why, when and how should defendants or liability insurers ever agree to settle a personal injury case using a structured settlement?
Bottom line: to answer that question and to evaluate the "quality, performance and satisfaction" of their structured settlement programs, defendants and liability insurers should analyze (and perhaps re-think):
- Program justification
- Structured settlements reduce claims costs.
- Structured settlements help defendants settle cases that would otherwise go to trial.
- Structured settlements represent good public policy.
- Program characteristics
- Program metrics
- Annuity premium generated by the structured settlement program.
- Structured settlement success ratio.
- Cost or cost savings.
S2KM will continue to discuss "structured settlement metrics" in subsequent blog posts which also will be featured on the structured settlement wiki.
Comments