Beyond Structured Settlements

NSSTA Marketing Surveys - Senior Claims Executives 2

The National Structured Settlement Trade Association (NSSTA) has established a new NSSTA "Industry Growth Initiative,"  "designed to identify opportunities to expand the use of structured settlements and bring those opportunities to the structured settlement industry marketplace."

A recent three-part survey commissioned by NSSTA, and conducted by CLM Advisors, of NSSTA members' traditional sales targets (senior claims executives; claims professionals; plaintiff attorneys) offers valuable insights for NSSTA's Growth Initiative and therefore is the subject of an S2KM blog series. S2KM summarized NSSTA's survey of senior claims executives in this prior blog post.

When interpreting some of the key findings from NSSTA's survey of senior claims executives, it is useful to compare the findings from a separate 2011 study (titled: "National Litigation Management Study") commissioned by the Claims and Litigation Management (CLM) Alliance (formerly "the Council on Litigation Management"). CLM Alliance is the parent company of CLM Advisors, the company that conducted the three-part survey project for NSSTA.

Two findings from the 2011 CLM Alliance study are significant for structured settlements and for interpreting key findings from NSSTA's 2014 survey of senior claims executives.

• Based upon interviews with leading litigation management executives, the 2011 CLM Alliance study identified structured settlement as the "most penetrated external initiative" among 30 litigation-related service areas analyzed.

• Another "key finding" that emerged from the answers to the more than 160 questions covered in that 2011 CLM Alliance study: "litigation executives are not happy with the metrics and analytics available to them." Note: this finding was not limited to structured settlements.
  

An article in the Fall 2011 issue of CLM's "Litigation Management Magazine", discussing the 2011 CLM Alliance study, further describes a "shift in thinking" among litigation executives about metrics and analytics applicable to national service provider programs such as structured settlements:

"These programs are about much more than cost savings, although the savings can be substantial and can be in and of themselves a primary motivation to create these programs. 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, satisfaction levels. These are the metrics that a national service provider must be able to give to its clients in today's environment."

NSSTA's 2014 survey of senior claims executives confirmed continuing support among survey participants for structured settlements as well as their perception that structured settlement consultants add value to the liability insurance claims process. 100 per cent of the senior claims executives who participated in the survey, however, said their companies could do more to proactively use structured settlements:

Relative to metrics and analytics, NSSTA's survey found:

• Only 20 percent of the participants reported having any set of objectives around the use of structured settlements.
• A majority of the participants did not measure referral volume and only half measure the volume of successfully written structures.

Collaborating with individual property and casualty insurance companies (or associations such as the CLM Alliance) to identify, develop, improve, implement and measure structured settlement metrics and analytics, therefore, should represent one important marketing priority and program foundation for improving structured settlement sales.

Neither the CLM Alliance 2011 study nor NSSTA's 2014 survey recommend specific metrics or analytics to determine the effectiveness of, or to define "success" for, structured settlement programs.

Using the NSSTA 2014 survey and the CLM 2011 study as points of reference, here are some questions structured settlement brokers might discuss with senior claims executives to develop such metrics and analytics:

• How do you define whether your structured settlement program is successful?
• What performance metrics help you evaluate the effectiveness of your structured settlement program?
• How effective are your metrics and analytics in measuring success?
• Which metric is most important?
• Which metric is most difficult to obtain or confirm?
• Do structured settlements increase or decrease your claims costs?
• How do you measure the impact of structured structured settlements on your claims costs?
• What is your structured settlement success ratio?
• What changes in your program would improve your structured settlement performance?

To transform these suggested introductory questions into a successful marketing and sales strategy, structured settlement brokers must be capable of effectively discussing structured settlement metrics and analytics. NSSTA could assist its members in doing so by offering educational programs designed to improve its members' abilities to identify, develop, implement and measure structured settlement metrics and analytics.

In a final blog post analyzing NSSTA's survey of senior claims executives, S2KM will consider the significance of additional survey findings on future defense-driven structured settlement market growth.

Structured Settlement Surveys - 2

The National Structured Settlement Trade Association (NSSTA), in partnership with CLM Advisors, has recently completed a three-part structured settlement survey project of senior claims executives (Part 1), claims professionals (Part 2) and plaintiff attorneys (Part 3) the results of which provide NSSTA members with marketing tools for discussions with the audiences surveyed.

Complementing NSSTA's surveys, NSSTA member and structured settlement provider Prudential recently published the results of its own 2013 survey of 400 claimants who had entered into a settlement of a physical injury or workers’ compensation claim of at least $100,000 from 2003 to 2013.

Considered together, these four surveys provide valuable insights into how key stakeholders currently view the structured settlement market. They also provide a point of reference for, and comparison with, other structured settlement market surveys several of which have been completed or updated since S2KM published this previous blog post in November 2008.

What follows are brief summaries of prior structured settlement surveys. In subsequent blog posts, S2KM will review and evaluate the most recent NSSTA and Prudential surveys.

• NSSTA 2006: Survey of Plaintiff Attorneys and Structured Settlement Recipients - This NSSTA-sponsored survey was titled: "A Study of the Structured Settlement Process Conducted on behalf of the National Structured Settlement Trade Association" and 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. It consisted of attorneys involved in structured settlements (43 telephone surveys) and structured settlement recipients (1275 telephone and Internet surveys). Among the reported results:
  • 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 included structured settlements.
  • When asked: "Whom do you prefer to use for purposes of financial planning for your clients?" , surveyed attorneys responded: trust company/department - 30%; Financial planner - 28%; Structured settlement consultant - 23%; No response - 19%.
• American General 2007: Survey about Structured Settlement Public Awareness - Sponsored by AIG American General and conducted by Esearch.com, Inc. in September 2007, this 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. 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. AIG's conclusion: the structured settlement industry needs to better educate Americans about structured settlements.
• J.G. Wentworth 2008: Survey of Structured Settlement Recipients - The survey consisted of 115 structured settlement recipients who had previously sold payment rights to J.G. Wentworth. The survey questions addressed both primary and secondary market issues, focusing upon the reasons the respondents: 1) first agreed to a structured settlement; and 2) then subsequently sold (transferred) some or all of their structured settlement payment rights. S2KM's prior reporting about the survey's primary market questions, responses plus related S2KM comments appears here. S2KM's prior reporting about the survey's secondary market questions, responses plus related S2KM comments appears here.
• Jeremy Babener 2009: Dissipation Legal Research Paper - Titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlements," this paper examines and challenges the myth of the squandering injury victim. In it, Babener refutes the existence of any published study supporting the statistic that "90% of lump sum recipients dissipate their recoveries within five years" and identifies 12 existing dissipation studies relevant to structured settlements that reach a contradictory conclusion: injury victims have no greater propensity to dissipate money than non-injury victims.
• Towers Watson 2011: "Update of U.S. Tort Cost Trends" - The 2011 update represents the 15th study of U.S. tort costs, and the most recently published, by Towers Watson. Note: a Tower Watson representative has informed S2KM it has no current plans to publish further updates. The 2011 study reported $264.6 billion of 2010 U.S. tort costs and excluded: 1) no-fault auto insurance; 2) property coverages; 3) workers compensation; 4) certain extraordinary (one time) costs. Tower Watson's 2002 study had previously 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) economic loss - 22%; and 5) non-economic loss - 24%. Based on the 2011 study and utilizing Tower Watson's 2002 "best estimate" of payout percentages, S2KM has estimated that since 2011 more than $170 billion of United States tort costs annually have represented payments to injury victims and their attorneys.
• Claims & Litigation Management Alliance (CLM) 2011: "National Litigation Management Study" - This survey of litigation management executives analyzed 30 litigation-related service areas including structured settlements. Commissioned by CLM (formerly the Council on Litigation Management ) and conducted by Revere Advisory, it identified structured settlement as the "most penetrated external initiative" among 30 litigation-related service areas analyzed based upon interviews with leading litigation management executives. CLM membership includes: corporations, insurance companies, government agencies, defense attorneys and law firms plus individuals "who participate in litigation and the management thereof (Corporate Counsel; Risk, Claims and Litigation Managers; Adjusters and Service Providers etc.)."
• Daniel Durbin 2013: Survey of Structured Settlement Brokers - Durbin, a former NSSTA President and Senior Structured Settlement Sales Manager with Allstate Life, conducted an informal survey with a group of leading structured settlement brokers to obtain their input and evaluate their interest in representing a potential new structured settlement product provider. Durbin identified himself as part of an investor group of individuals including insurance executives who see underdeveloped opportunities in the structured settlement primary market. Although Durbin has not published the results of his survey, he has presented to several industry groups and stated that the survey showed the interest is high as long as the new firm is financially strong with competitive rates.
• Melissa Evola Price 2002-2015: Quarterly Reports of NSSTA Member Structured Settlement Annuity Provider Sales - Melissa Evola Price's quarterly structured settlement report, selectively distributed to NSSTA members, is now copyrighted by her company, Structured Financial Associates, Inc. (SFA). Price and SFA have granted S2KM permission to publish selected portions of her report on both S2KM's blog ("Beyond Structured Settlements") and the structured settlement wiki. Her reports include historical data from 1975-2001 which is sourced with permission from "Structured Settlements and Periodic Payment Judgments" (S2P2J).  Evola Price most recently reported 2015 first quarter structured settlement annuity premium of $1,332,047,252, an increase of more than $230 million (21%) compared with the 2014 first quarter structured settlement annuity premium of $1,101,839,529.

NSSTA 2015 Annual Meeting

Continuing to advance a theme of "industry unity", which now appears to encompass some collaborative political lobbying as well as education, the National Structured Settlement Trade Association (NSSTA) hosted its 2015 Annual Meeting April 22-24 in Washington, D.C.

Incoming NSSTA President Michael Goodman highlighted these developments during his introductory address when he listed among other recent NSSTA successes: 1) a strong relationship with the American Association for Justice (AAJ); 2) improved dialogue with the Society of Settlement Planners (SSP); 3) guest educational participation involving SSP and National Association of Settlement Purchasers (NASP) representatives; as well as 4) successful cooperation with NASP to enact revised structured settlement protection legislation in Illinois.

The new Illinois legislation provides an antidote for problems created by the Brenston case. Among other changes to the prior Illinois statute, the new legislation also includes provisions to: 1) restrict forum shopping; 2) require the seller of payment rights to appear in person at the court hearing (unless the court determines that good cause exists to excuse the payee from appearing); and 3) require disclosure of prior transfers.

Representatives of both NSSTA and NASP have expressed their intent to cooperate in pursuing similar legislative reforms in other states including Florida, Tennessee, Virginia and Wisconsin.

Goodman also identified several goals for NSSTA during his term as President. These include: 1) modifying NSSTA's traditional "protect and preserve" message to inspire primary market growth; 2) moving beyond "interest rate selling"; 3) moving beyond a focus on factoring; 4) identifying and pursuing new markets for structured settlement annuities; 5) adding one or more new life company providers; 6) engaging new, younger structured settlement brokers; 7) providing a new and improved training initiative.

Goodman will be joined on the NSSTA Board by two newly-elected Directors: Jim Early and Geoff Kissel. They replace retiring Directors John Machir and Dan Goodmann. John McCulloch was re-elected to a new three year term of directorship. McCulloch was also honored as NSSTA's annual President's Award winner. Karen Meyers and Bill Wakelee were named recipients of NSSTA's annual Leadership Award.

NSSTA Executive Director Eric Vaughn updated members on the Structured Settlement Caucus which is co-chaired by Congressmen John Lewis and James Sensenbrenner and currently consists of 53 congressional members. The objectives of the Caucus include: 1) expanding the base of Congressional support for structured settlements; 2) educating new members of Congress about structured settlements; and 3) protecting and promoting structured settlements.

As an important auxiliary portion of its meeting, Vaughn and 125 NSSTA members "Took the Hill" to meet with Senators and Representatives. Their efforts received strong encouragement from Congressman Lewis who exhorted NSSTA members "to make some noise."

"Stand up! Speak up!" Lewis urged. "Structured settlements have always enjoyed strong bipartisan Congressional support. They are the right and necessary thing to do. They work by providing long term financial security for injury victims to live with dignity."

NSSTA and its Education Committee face a continuing challenge: how best to educate its members, who possess varying degrees of experience and who market to a diverse group of structured settlement producers and decision makers, to deliver high value services to their respective clients. NSSTA has addressed this challenge with multiple new initiatives:

• Structures 202 provides a comprehensive program of case management fundamentals and business development opportunities. Unlike Structures 101 (a prior NSSTA educational program for case managers), Structures 202 is also designed for structured settlement brokers who are new to the market and therefore includes an important, primarily plaintiff-oriented, business development component.
• Complementing and extending its Certified Structured Settlement Consultant (CSSC) Professional Certification Program, NSSTA has added a new Master's Certificate in Structured Settlement Consulting (MSSC). NSSTA recognized and honored the most recent graduates of both programs during its 2015 Annual Meeting.
• During its Fall 2014 Conference, NSSTA announced a new "NSSTA University" service whereby NSSTA will partner with any member to secure CE credits for member-sponsored educational seminars or insurance claims departments or law firms.
• In partnership with CLM Advisors, NSSTA's Marketing Committee has commissioned a three part survey project to provide its members with valuable marketing tools for discussions with the audiences surveyed. Part 1 (claims executives) and Part 2 (claims adjustors) have been completed. Part III will survey plaintiff attorneys.

In addition, from S2KM's perspective, NSSTA continues to upgrade its traditional educational conferences.

SPEAKERS AND TOPICS - NSSTA 2015 Annual Meeting

• Kevin Silo - Opening Remarks
• Congressman John Lewis - Keynote Speaker
• Michael Goodman - NSSTA Agenda and Objectives
• Sally Greenberg - Consumer & Legal Protections for Injury Victims
• Mike Montemurro and John Stanton - Internal Revenue Service Update
• Taylor Smith, Ronna Ruppelt, Robert Sampson - Delivering High Value Services to Claims Professionals
• Karen Meyers, Anne Marie VonBank, Cody Shively - Trigger Trusts
• Christi Fried, Paul Hansen, Phil Sanders - Trust Asset Allocation and Structured Settlements
• Stephen Harris, Timothy O'Driscoll and Peter Vodola - Judicial Education
• Susan Clark and Melissa Price - NSSTA Took the Hill
• Michael Miller, Earl Nesbitt, John McCulloch - Factoring Panel Discussions
• Dr. Quincy Krosby - Macro Economics and the Financial Markets
• Nancy Bond - Life Care Planning

For additional S2KM reporting about past NSSTA conferences, see the structured settlement wiki.

S2P2J Release 57 Highlights

The United States structured settlement market has been in existence for more than 35 years and continues to expand its scope, complexity and importance within the context of personal injury settlement planning.

Since it was first published in 1986, "Structured Settlements and Periodic Payment Judgments" (S2P2J), has provided structured settlement stakeholders with an authoritative reference guide, consisting of 16 chapters with extensive footnotes and Appendix documents, to help them understand issues and fashion settlements and judgments utilizing periodic payments. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized S2P2J as an educational resource for their certification programs.

Co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert, S2P2J now features an online version as well as the traditional hardcopy. Online S2P2J includes a search feature and download capability as well as link features to access individual book sections, appendices, footnotes, cases and statutes.

Publisher Law Journal Press anticipates a March 2015 distribution date for hardcopy supplements for S2P2J Release 57 with online S2P2J subcribers receiving their update simultaneously with no additional subscription charge. Competent professionals confronted by structured settlement issues should have access to an up-to-date copy (or the online version) of this indispensable source book.

Release 57 Highlights - Release 57 will feature new, updated and/or expanded sections addressing the following structured settlement topics:

• WCMSAs - Release 57 re-positions and expands S2P2J's extensive summary of the new CMS rules for workers compensation Medicare set-asides, the fastest growing segment of the structured settlement primary market. Regulatory rules for liability MSAs remain essentially unchanged following the withdrawl by CMS on August 8, 2014 of it the liability MSA-related NPRM it had earlier submitted to the Office of Management and Budget.
• Indexed Annuities - PLR 143928-13 highlights the potential importance of indexed annuities and annuity riders as structured settlement funding alternatives. Release 57 features a new section explaining indexed annuities, differentiating variable annuities and summarizing the related PLR.
• Commutation Riders - PLR 143928-13 also provided favorable tax treatment for a commutation rider pursuant to a Notice of Hardship Conversion as a potential alternative to factoring transactions. This PLR justified an expansion in Release 57 of S2P2J's current section discussing commutations.
• Non-qualified Assignments - Most non-qualified assignments depend upon off-shore assignment companies which raise tax and security issues for participants. Release 57 expands S2P2P's analysis of non-qualified assignments to address these issues.
• CLM Advisors Surveys - Release 57 summarizes results from two surveys commissioned by NSSTA to determine the value claims executives and adjustors place on structured settlements and structured settlement consultants. The results and related metrics are generally favorable and arguably provide a valuable marketing blueprint for defense brokers.
• ABLE Accounts - Release 57 features a new section describing ABLE Accounts, a tax-preferenced funding option authorized by the Achieving a Better Life Experience Act (ABLE Act) of 2014. Although some structured settlement consultants view ABLE Accounts as a competitive product, others see opportunities to fund ABLE accounts using structured settlements.
• Insurance Regulation - States historically have regulated insurance in the United States. As a result of the 2008 global financial crisis, however, new federal and international insurance regulatory agencies now exist which are targeting some of the largest structured settlement annuity providers among other financial and insurance companies. Release 57 adds a new section to introduce and explain these new regulatory developments and entities.
• ELNY and Reliance - The recent ELNY and Reliance liquidations have each impacted thousands of structured settlement recipients. Although judicial solutions have been fashioned, litigation continues - as least involving some ELNY shortfall payees. Release 57 updates S2P2J's extensive coverage of the ELNY and Reliance liquidations.
• Role of Plaintiff Attorneys - As structure settlements and personal injury settlement planning have become more complex, and plaintiff attorneys increasingly require the services of other settlement planning professionals, plaintiff attorneys should continue to perform certain essential structured settlement and settlement planning roles. Release 57 identifies and discusses those roles and provides additional related advice for plaintiff attorneys.
• Secondary Market Update - The continuing expansion of the secondary market has generated controversy and litigation as well as legislative reform and changing business practices. S2P2J continues to track these developments in expanding chapter 16 titled "Transfers of Structured Settlement Payment Rights". Release 57 highlights include "anti-assignment" issues in Illinois originating with the Brenston case and the market "chaos" some secondary market participant see occurring as the result of the Washington Square v. RSL Funding case.
• IRC 104(a)(2) Treasury Regulations - Recent U.S. Treasury Regulations for IRC 104(a)(2) relating to the exclusion from gross income for amounts received on account of personal physical injuries or physical sickness make two primary changes to the current regulations which Release 57 summarizes in the context of S2P2J more extensive analysis in Chapter 2 of "Taxation of Damages Received by the Claimant".

For related S2KM blog reporting about structured settlement 2014 developments, see:

• Primary market
• Secondary market
• Settlement planning
• ELNY and Reliance

 

Structured Settlements 2014 - Primary Market

The United States structured settlement primary market has continued to slowly recover from its 2012 nadir during 2014 with first nine months annuity sales of approximately $3.9 billion resulting from 19,778 cases (as reported by Melissa Evola) a premium increase of 3% compared to $3.73 billion for the same period in 2013.

Total projected 2014 annual premium of $5.28 billion, however, is expected to fall substantially short of the historic 12 month industry apogee ($6.2 billion in 2008) after consistently averaging close to $6 billion annually from 2001-2007. For estimated annual structured settlement annuity sales since 1976, see the structured settlement wiki.

Adding these 2014 third quarter results to historic U.S. structured settlement totals, S2KM estimates the following primary market metrics from 1976 thru September 30, 2014:

• Total annuity premium: $143 billion.
• Total structured settlement cases: 822,000
• Average annuity premium: $174,000.

Nine month 2014 sales results for individual structured settlement annuity providers (per Evola's report) which are members of the National Structured Settlement Trade Association (NSSTA) plus the rounded increase (+) or decrease (-) from comparable 2013 results:

• Berkshire Hathaway - $1.113 billion (+ $79 million)
• MetLife - $678 million (+ $114 million)
• Pacific Life - $553 million (- $47 million)
• Prudential Life - $463 million (+ $90 million)
• Liberty Life - $430 million (+ $21 million)
• Amgen/USL - $378 million (- $57 million)
• New York Life - $206 million (+ $14 million)
• Mutual of Omaha - $40 million (- $10 million)

Notes

• Allstate and John Hancock, which have departed the structured settlement market, sold a combined $79 million of structured settlement annuities during the first nine months of 2013.
• To better understand their clients' "perceptions, utilization and understanding of the value of structured settlement consultants" (and presumably to improve industry sales), NSSTA has retained CLM Advisors to conduct separate marketing surveys of property & casualty 1) senior claims executives and 2) claims adjustors as well as 3) plaintiff attorneys. The results of Phases 1 and 2 were presented at NSSTA 2014 educational conferences.

Low Interest Rates

Many structured settlement industry participants attribute decreased sales to low interest rates. Market yields on U.S. Treasury securities at 30 year constant maturity peaked at 13.45 percent in 1981. Here are several historic average annual rates for 30 year Treasury securities (source: U.S. Department of the Treasury):

• 2014 (as of December 5) - 2.97%
• 2013 - 3.96%
• 2012 - 2.95%
• 2011 - 3.91%
• 2010 - 4.25%
• 2009 - 4.08%
• 2008 - 4.28%
• 2007 - 4.84%
• 2000 - 5.94%
• 1990 - 8.61%
• 1980 - 11.27%

Submarkets - Two noteworthy submarkets are incorporated within the structured settlement annuity production numbers set forth above:

• Non-Qualified Assignments
  • Non-qualified assignments represent transfers of periodic payment obligations that do not meet the requirements of IRC section 130.
  • Unlike qualified assignees, U.S.-based, non-qualified assignees are subject to income tax on the amount they receive from whatever entity assigns (or more accurately "delegates") periodic payment obligations for claimants who do not qualify for tax exclusions under IRC section 104(a)(1) or (2) - such as employment discrimination cases or deferred attorney fees.
  • Despite the promise of a large potential "non-qualified assignment" market, reported sales on non-qualified structured settlement annuities by NSSTA members have declined since 2012.
  • Reported nine month 2014 non-qualified structured settlement sales totaled $113.2 million compared with $124.3 million in 2013.
• Medicare Set-Asides
• A Medicare set-aside (MSA) is an administrative and funding mechanism utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the Medicare Secondary Payer (MSP) statute.
• Although Federal law does not define MSAs, or mandate specific types of MSA funding mechanisms, CMS (the responsible federal agency) has established certain basic requirements for workers compensation MSAs (WCMSAs).
• No similar rules exist for liability MSAs. In October 2014, CMS withdrew a Notice of Proposed Rulemaking (NPRM) which was expected to address liability MSAs.
• Under current CMS rules, structured settlement annuities have an inherent cost advantage over lump sum alternatives for funding WCMSAs resulting from the method CMS prescribes for calculating present values.
• Based upon industry sources, S2KM has previously estimated that eight (8%) percent of 2013 structured settlement premium and 24 percent of 2013 structured settlement annuities were attributable to WCMSAs. Under current CMS rules, these numbers could increase in 2014.

Product Developments - Significant structured settlement product developments occurred during 2014 including:

• Equity-indexed Annuity Rider - Pacific Life has obtained a Private Letter Ruling (PLR-143928-13) from the IRS approving favorable tax treatment for a structured settlement annuity with annual payment adjustments based on the performance of the Standard & Poors 500 Index. Although life insurance companies first offered equity-indexed annuities during the mid-1990's to compete with indexed mutual funds, Pacific Life's ILAAPR represents the first U.S. equity-indexed structured settlement option. To achieve market success, structured settlement consultants must convince settlement recipients that potentially higher long-term ILAAPR payouts (based upon S&P 500 performance) will offset lower starting payments compared with traditional structured settlement annuities.
• Hardship Conversion Feature - PLR-143928-13 also approves favorable tax treatment for a structured settlement annuity with a commutation pursuant to a Notice of Hardship Conversion which the PLR describes as follows: "The Notice of Hardship Conversion provides that the Assignee will consider a request from Claimant to convert future guaranteed structured settlement payments to an immediate lump sum payment, in certain qualifying hardship circumstances, if the request is approved by a court or applicable administrative authority pursuant to a qualified order under § 5891(b)(2). The qualifying hardship circumstances are financial hardship due to medical expenses, expenses related to a terminal illness, home improvement expenses for handicap accessibility, job loss, loss of home, and the same type of expense for the payee’s dependents. Assignee expressly represents that it reserves the right to decline any hardship conversion request and that it will consider each hardship conversion request on a case-by-case basis. In addition, Assignee represents that it will not allow any hardship conversion in the first year after a qualified assignment."
• Periodic Payment Reinsurance - Although first offered in 1982, Berkshire Hathaway re-introduced its periodic payment reinsurance product during 2014.  Issued by National Indemnity Company, a Berkshire property and casualty company, this product is available for both tax-free periodic payments [under IRC 104(a)(1) and/or (2)] and non-IRC 130 tax-deferred periodic payments. In many respects analogous to traditional structured settlements, Berkshire asserts multiple advantages for its reinsurance product. These include greater financial strength than other structured settlement product providers plus higher interest rates because, unlike life insurers, National Indemnity's investments are not concentrated in bonds. Unlike traditional structured settlements, however, periodic payment reinsurance does not qualify for guarantee fund coverage and cannot be used by self-insureds. For more detailed analysis of periodic payment reinsurance as well as other structured settlement financing alternatives, see Chapter 3 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

Primary Market Challenges - Reporting on NSSTA's 2014 Fall Educational Conference, S2KM summarized the following challenges currently facing the structured settlement primary market:

• Generational transition
• Stagnant growth
• Polarized and complex overlapping market(s)
• Alternative business models
• Increasing competition
• Changing success factors

In subsequent blog posts, S2KM will address 2014 structured settlement developments related to the secondary market, personal injury settlement planning and the ELNY liquidation. For prior S2KM annual reporting, see the structured settlement wiki.

NSSTA 2014 Fall Educational Conference

Although David Ringler was unable to attend the National Structured Settlement Trade Association (NSSTA) 2014 Fall Educational Conference October 29-30 in La Jolla, California, he had an apparent impact. Ringler, NSSTA's first president, previously re-stated his original vision for NSSTA during NSSTA's 25th anniversary celebration in 2011:

"Although we do need to constantly be on the watch for legislative change, 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. I have called it a common “talk table”, although I agree that is not exactly a very elegant term. If we can continue this tradition, there is no problem we cannot overcome."

Many industry participants, including some NSSTA members, have questioned whether NSSTA has lost sight of this original purpose and tradition. For the past several years, NSSTA's leadership has superimposed a political litmus test for membership, as well as for topics and speakers at its educational conferences. As one result, structured settlement industry participants with alternative issues, viewpoints, beliefs and educational interests have founded two other national structured settlement associations: the National Association of Settlement Purchasers (NASP) in 1996 and the Society of Settlement Planners (SSP) in 2000.

NASP and SSP Participation

Perhaps responding to Ringler's clarion call, NSSTA opened its members-only educational program in La Jolla by inviting NASP President Patricia LaBorde and SSP President Neil Johnson to speak.

LaBorde was featured on a Secondary Market Panel, moderated by John McCulloch, which also included Stephen Harris and Patrick Hindert as panelists. McCulloch's questions targeted primary market concerns such as the prevalence of secondary market transfers, consequences of transfer company advertising and secondary market discount rates. The resulting discussion captured the audience's undivided attention and hopefully will result in expanded educational dialogue between NSSTA and NASP to include shared political and business interests.

Johnson and current NSSTA President Kevin Silo jointly addressed "Industry Challenges", a panel discussion moderated by NSSTA President-elect Michael Goodman. Repeating portions of his SSP 2014 keynote speech, Johnson proposed the following solutions for achieving industry unity: 1) recognizing and accepting product diversity; 2) focusing on client and customer service; 3) identifying and pursuing permanent shared interests without necessarily agreeing on all issues; 4) engaging all perspectives to discuss industry problems and issues; 5) improving relationships among stakeholder groups; 6) promoting and practicing settlement planning not settlement selling.

Generational Change and Challenges

NSSTA and the primary structured settlement market face multiple challenges (see below) - perhaps none greater than succession. What new generation of distributors, or distribution channel(s), will emerge (and when) to replace and build upon the accomplishments of the pioneering generation (now in their 60s and 70s) who originated the structured settlement market in the late 1970s?

In addition to generating more than $140 billion of annuity premium, the legacy of NSSTA's retiring generation includes enactment of the existing structured settlement legislative framework: current IRC sections 104(a)(1) and (2) and 130 plus multiple state periodic payment of judgment statutes and (with NASP) enactment of IRC 5891 and the state protection statutes. More recently, however, NSSTA's aging leadership has focused on defense - with "protect and preserve" its principle mantra.

NSSTA attempted to addressed this generational succession issue at its Fall conference by juxtaposing panels featuring past NSSTA Presidents and "Next Generation" brokers. The impression that emerged: NSSTA and the primary market have reached an historic crossroads - with multiple stakeholders, issues and options, but no clear future direction.

Whatever next generation of NSSTA leaders emerges will face several challenges:

• Stagnant growth - Since achieving $6 billion of annual annuity sales in 2001, structured settlement premium growth has stagnated with 2013 sales totaling $5.1 billion.
• Polarized market(s) - NSSTA's leaders have been unable, and/or unwilling, to unify the structured settlement market(s) around such shared interests as: primary market growth; preservation of existing legislation; and consumer protection - which prioritizes maintaining promised periodic payments.
• Alternative business models - Can alternative structured settlement models (traditional defense vs. emerging plaintiff) continue to co-exist and collaborate?
• Complexity - Structured settlements represent a strategic product within the larger and more complex personal injury settlement planning (settlement planning) market.
• Product features - Will Pacific Life's recent private letter ruling encourage structured settlement annuity providers to expand their product offerings to include "equity-indexed" annuities and "hardship conversions"?
• Competition. Within the settlement planning market, the growth and leadership of other product and service providers has increasingly exceeded the growth and leadership of structured settlement participants.
• Success factors. To expand sales within the evolving settlement planning market, NSSTA's leaders must re-think and re-engineer historical success factors - backgrounds and skill sets; educational programs; business models; product enhancements; sales and marketing strategies.

KNOWLEDGE MANAGEMENT

The settlement planning market is knowledge-intense and increasingly Internet-based. To continue, and increase, their historical success within the evolving settlement planning market, NSSTA and its members must improve their knowledge management capabilities. One preliminary step is to identify and evaluate existing strategic knowledge. NSSTA and its members possess three primary types of strategic knowledge:

• Product knowledge - The "Tax Posse", the ACA summary, and even the Non-traditional Products presentation at NSSTA's Fall conference represent good examples of NSSTA's product knowledge. Perhaps more important, and more valuable, than explicit product knowledge, NSSTA members possess tacit (intuitive, experiential) knowledge of how structured settlements work. In the context of the secondary market, however, NSSTA member knowledge of its own product is arguably much weaker, and, therefore, incomplete and less valuable.
• Relationship knowledge - Much of NSSTA's Fall conference related to, and re-enforced, NSSTA's and NSSTA members' settlement planning relationship knowledge about and with: 1) plaintiff attorneys; 2) insurance associations; 3) insurance claims adjustors; 4) national consumer associations; 5) U.S. Congressional members; 6) MSA administrators; 7) SSP; and 8) NASP. In settlement planning, as in life more generally, it is not what you know but who you know that counts the most.
• Market knowledge - Compared with other settlement planning market segments, NSSTA (and NASP) appear to have developed and maintained more accurate market metrics including quarterly and annual premium and cases in total and for each member product provider. To further expand structured settlements into the settlement planning market, NSSTA and its members might begin to track additional metrics. For examples: what percentage of structured settlements are utilized to fund MSAs, SNTs and settlement trusts more generally. Which categories of structured settlement recipients are most likely to sell payment rights and why?

MARKETING INITIATIVES

NSSTA conference speakers introduced multiple new marketing initiatives including:

• "NSSTA University" - NSSTA's Debbie Sink announced a new "NSSTA University" service whereby NSSTA will partner with any member to secure CE credits for member-sponsored educational seminars or insurance claims departments or law firms.
• CLM Survey Part II - In partnership with CLM Advisors, NSSTA's Marketing Committee summarized CLM Survey Part II (claims adjustors) of an eventual three part survey project. Part I surveyed claims executives. Part III will survey plaintiff attorneys. These surveys provide NSSTA members with valuable marketing tools for discussions with the audiences surveyed.

TOPICS AND SPEAKERS

• Introduction and Welcome - Eric Vaughn.
• Industry Challenges - Michael Goodman (Moderator), Kevin Silo, Neil Johnson.
• Next Gen Brokers - Louis Masry (Moderator), Kristen Chess, Ryan Garrison, Tony Robinson.
• Financial Issues for People with Disabilities - Sally Greenberg and Mark Perriello.
• AAJ Treasurer Elect - Elise Sanguinetti.
• MSA Professional Administration - Tom Adams (Moderator), Marques Torbert, Joe Anderson.
• Affordable Care Act - Jordan Bossler.
• Past NSSTA Presidents - Moderators (Kevin Silo; Eric Vaughn); Jeff Bowers, Len Blonder, Joe Costello, Mal Deener, Dan Durbin, Randy Dyer, Dan Finn, Patrick Hindert, John Machir, Henry Strong.
• Factoring Panel - John McCulloch (Moderator), Stephen Harris, Patrick Hindert, Patricia LaBorde.
• Non-Traditional Products - Erin Muller (Moderator), John Arendt, Ryan Jandreau, Jeff Reinhold, Chris Shumate, Ravi Vaswani.
• American Insurance Association - Peter Foley.
• CLM Survey Part II - Taylor Smith, Susan Clark, Jeff Livingston.
• Tax Posse - John McCulloch, Timothy O'Driscoll, Tom Ronce.
• NSSTA CE News - Erin Muller and Debbie Sink.

Congratulations to NSSTA and conference chairperson Erin Muller for re-establishing NSSTA's tradition of educational programs featuring speakers with multiple viewpoints on industry issues "regardless of beliefs". David Ringler and other structured settlement pioneers should feel gratified - and hopeful for NSSTA's future success.

For S2KM's reports about prior NSSTA educational conferences, see the structured settlement wiki.