Increasing use of structured settlements by plaintiff attorneys and their clients requires a more "unified marketing strategy" by stakeholders according to multiple brokers who exhibited at the recent American Association for Justice (AAJ) 2014 Annual Conference in Baltimore.
Seven primary market brokers, one structured settlement annuity provider and two secondary market companies were prominent among the 141 sponsors and exhibitors at the AAJ conference which also included as exhibitors multiple companies offering lien resolution, MSA compliance, life care planning, legal finance and economic consulting services.
Other marketing advice from AAJ structured settlement exhibitors offering insights into how to grow the primary market:
- "Our industry needs more educational marketing.
- "The secondary market has stolen our brand and we need to get it back.
- "Many plaintiff attorneys do not discuss structured settlements with their clients.
- "We need to educate plaintiff attorneys to stop thinking of their clients as 'investors' and to recognize the benefits of structured settlements.
- "Most plaintiff structured settlement brokers are too narrowly focused on product.
- "Future success requires 'full service' not just annuities - financial planning, settlement trusts and lien resolution.
- "Plaintiff brokers need to be more holistic and offer plaintiff attorneys a 'brain trust' of strategic relationships.
- Offering non-structured settlement products and services to plaintiff attorneys 'has taken the lid off' our company's original view of the size of the settlement planning market."
Underperforming Market
Many industry observers view the United States structured settlement primary market as a strategic, underperforming segment of the larger personal injury settlement planning market:
- Primary market structured settlement annuity premium increased approximately seven (7%) percent to $5.134,380,855 in 2013 (compared with $4,819,124,617 in 2012) according to industry estimates compiled by Melissa Evola.
- Total structured settlement cases in 2013 also increased to 26,533 from 25,038 a year earlier for an average case premium of $193,495.
- The 2013 annual premium totals, however, fell substantially short of the historic 12 month industry high ($6,226,578,725 in 2008) after consistently averaging close to $6 billion annually from 2001-2007.
- Evola's 2013 compilation also reported an annual decrease in annuity premium for non-qualified structured settlements (from $170.1 million in 2012 to $164.9 million in 2013) despite earlier industry projections of a large and growing market .
- Non-qualified structured settlements represent transfers of periodic payment obligations that do not meet the requirements of IRC sections 130 and 104(a)(1) or (2) including deferred plaintiff attorney fees.
- Independent industry sources further report a substantial shift in recent structured settlement premium with increasing sales to fund workers compensation Medicare set-aside arrangements (WCMSAs).
For comparison, based upon Towers Watson's 2011 Annual Study of "United States Tort Cost Trends" and utilizing Tower Watson's 2002 "best estimate" of payout percentages, S2KM estimates that more than $170 billion of United States tort costs annually have represented payments to injury victims and their attorneys. The Towers Watson study excluded: 1) no-fault auto insurance; 2) property coverages; 3) workers compensation; 4) certain extraordinary (one time) costs.
Structured Settlement Marketing - to Defendant Insurers
Although primary market structured settlement participants have successfully marketed their products and services to defendants and their insurers, they have been less successful marketing to plaintiff attorneys and their clients.
A 2011 National Litigation Management study, commissioned by the Council on Litigation Management (CLM) and conducted by Revere Advisory, identified structured settlement as the "most penetrated external initiative" among 30 litigation-related service areas analyzed based upon interviews with leading litigation management executives.
The success of structured settlement marketing to defense insurers was further evidenced by a 2014 study of "how senior claims executives perceive the value of structured settlements and the value that structured settlement consultants bring to the table" commissioned by the National Structured Settlement Trade Association (NSSTA) and conducted by CLM Advisors. Among the findings - ninety percent of respondents:
- Indicated their organizations maintain a “formalized structured settlement program”; and
- Reported their belief that, when a structured settlement consultant is involved, claims are “more likely to settle.”
Structured Settlement Marketing - to Plaintiff Attorneys and Injury Victims
Earlier in 2006 (before interest rates crashed), NSSTA sponsored a survey of plaintiff attorneys involved in structured settlements (43 telephone surveys) and structured settlement recipients (1275 telephone and Internet surveys) titled: "A Study of the Structured Settlement Process Conducted on behalf of the National Structured Settlement Trade Association." Among the results, as reported at NSSTA's 2007 Winter and Annual meetings:
- Structured settlement recipients:
- 65% said they had not heard about structured settlements prior to settlement.
- Most were uncertain whether a structured settlement consultant was involved with their case.
- 34% recalled receiving educational information while 75% of this 34% said the information was helpful.
- 66% first learned about structured settlements from their trial attorney.
- 75% said they were very happy their settlement included structured settlement annuities.
- 75% said they would recommend a structured settlement.
- Plaintiff attorneys involved in structured settlements:
- 95% said they are proponents of structured settlements.
- 70% said they retain a structured settlement consultant at least for some cases.
- When asked: "Whom do you prefer to use for purposes of financial planning for your clients?", the attorneys responded:
- 30% - Trust company/department.
- 28% - Financial planner.
- 23% - Structured settlement consultant.
- 19% - No response.
Based upon the 2006 survey results, however, NSSTA estimated only 7% of personal injury settlements between $75,000 and $200,000 include structured settlements; and only 30% of personal injury settlements above $1 million include structured settlements.
Growing the Primary Market
What explains the apparent differences in marketing success by the primary structured settlement industry to 1) defense insurers; and 2) plaintiff attorneys and personal injury victims?
Several explanations are possible. They deserve and require greater analysis by the primary market. As one example, while defense brokers essentially sell a singular structured settlement product to their clients without direct competition from other financial/insurance product providers, plaintiff brokers must compete with settlement trustees, financial planners and other providers of asset management services.
As a result, plaintiff structured settlement brokers increasingly are evolving into alternative business models that offer structured settlement annuities as one of multiple products and more fully participate in a larger, more complex business (personal injury settlement planning) than structured settlement defense brokers.
Growing the primary structured settlement market therefore requires its proponents to ask themselves these fundamental questions: "what business are we in?", or, stated somewhat differently, "in what markets do we, or should we, participate?"
Failure to sufficiently address these issues has perpetuated both "inside-the-box" strategic thinking and traditional marketing strategies responsible, in part, for recent sales declines of the structured settlement product - a product which offers multiple, unique advantages and benefits from public policy endorsement, multiple tax preferences and statutory consumer protection.
The Settlement Planning Market
Despite an abundance of related professional associations, participants and conferences, as well as legislative and regulatory developments, personal injury settlement planning remains an evolving concept and market with competing definitions, standards and business models and many unanswered questions.
Many recent and continuing legislative and regulatory developments impact personal injury settlement planning, including:
- Affordable Care Act
- CMS WCMSA Reference Guide
- The SMART Act
- Defense of Marriage Act
- Dodd-Frank Uniform Fiduciary Standard
- Bipartisan Budget Act of 2013
Settlement planners consist, or represent a blend, of several professionals in addition to traditional personal injury litigation participants. These professionals include: tax attorneys, special needs attorneys, trustees, financial planners, structured settlement specialists, life care planners, economists, Medicare set-aside (MSA) specialists and damage allocators.
Professional associations, in addition to AAJ, whose members engage in settlement planning include: NSSTA, SSP, NAELA, ASNP, SNA, NAMSAP, AANLCP - and NASP assuming the definition of settlement planning includes adjustments during an injury victim's lifetime.
To grow the primary market, structured settlement proponents must learn how to better market the benefits and applications of structured settlements to plaintiff attorneys and these other professional groups and associations in the context of evolving settlement planning marketing, work product, business standards and educational priorities.
This educational and marketing challenge requires all structured settlement participants to fundamentally "re-think" structured settlements and their own roles in personal injury settlement planning. One result should be consideration of a more unified marketing strategy to plaintiff attorneys and their clients among heretofore competing professional associations such as NSSTA, SSP and NASP.
Conversations with structured settlement exhibitors at the AAJ 2014 Annual Meeting indicate some primary market plaintiff brokers already understand this message and are transitioning their business models accordingly.
For S2KM's report about the AAJ 2014 Winter Meeting, see this prior blog post.
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