Beyond Structured Settlements

SSP 2017 Annual Conference

Although the Society of Settlement Planners (SSP) was founded in 2000, the term "settlement planner" is still viewed by many structured settlement stakeholders as an inflated synonym for "plaintiff broker". Current SSP President Joseph Tombs agrees.

"Until recently," Tombs stated in an S2KM interview, "that view was entirely accurate. A plaintiff broker would simply order new business cards with the new title ('Settlement Planner') proudly displayed. Today, however, that transition creates changes in expectations, applicable standards of care, and required levels of disclosure."

Just as significant, under Tombs' leadership, SSP has made a dramatic policy shift: "to pull back completely from structured settlement politics". Tombs quickly adds, however: "Our refusal to take a position should not be misunderstood to imply anything about our individual members." For example: "[t]he SSP has been a zealous advocate of the single-claimant QSF in the past and I doubt any of our members have changed their opinions on the subject. We are not asking our members to suppress or to modify their own beliefs."

The changes in SSP, as well as the growing maturation of settlement planning, were evident during SSP's recent 2017 Annual Conference which occurred March 1-3 in Las Vegas. Perhaps the most provocative statement of change, at least from a structured settlement perspective, was a panel discussion titled "Comprehensive Settlement Planning in a Post Structure-Centric World" featuring Tombs; Jack Meligan; Charly Schell; and Joseph DiGangi.

Each of these panelists has been a settlement planning leader and proponent for many years. Meligan and Schell are former SSP Presidents. DiGangi is the newly-elected SSP Vice-President. As panelists, each offered settlement planning "tips" including:

• Meligan - Dive into Medicare; study and understand the power of QSFs; expand your vision beyond structured settlement annuities.
• Schell - Prioritize planning over products; pay attention to compliance in the planning process.
• DiGangi - Obtain relevant credentials (RSP; CSSC; MCSSC; CFP; RIA; CFA; CPA; JD); charge fees for your expertise.
• Tombs - structure into trusts; consider equity-indexed annuities; embrace comprehensive services (financial planning; asset management; trust services; legal services; insurance products; lien resolution; MSP compliance; MSA allocations or management; factoring assistance; economic witness).

SSP did not ignore structured settlements during its 2017 Annual Conference. On the contrary,. the conference included a 90 minute panel discussion titled "Structured Settlement Industry Developments" featuring "Structured Settlements and Periodic Payment Judgments" (S2P2J) co-authors Daniel Hindert, Joseph Dehner and Patrick Hindert (S2KM's Managing Director) as panelists. Topics discussed included S2P2J Release 61 highlights; renewed structured settlement sales growth ; the current AIG class action ; and the current ELNY class action . The SSP conference audience included National Structured Settlement Trade Association (NSSTA) Board members, NSSTA brokers and NSSTA annuity provider representatives. Multiple NSSTA members were featured as speakers.

The SSP conference also included an informative panel discussion about the structured settlement secondary market titled "Bad Practices in the Secondary Market" featuring John Darer, Eddie Stone and moderated by Rhonda Bentzen. The presentation provided a detailed, professional critique, with examples, of false advertising by some primary market participants who sell products consisting of "re-cycled" or "derivative" structured settlement payment rights as "annuities" or "structured settlements" as well as the risks and dangers of such products.

Just as SSP as an association is transitioning, the relative role and importance of structured settlements (from SSP's perspective) is also changing - and this poses a challenge for NSSTA and the structured settlement industry generally. For examples:

• Although most of the SSP members who produce structured settlements are also NSSTA members, according to Tombs, he also maintains that most SSP members, sponsors and seminar attendees do not sell structured settlement annuities.
• SSP has developed a new set of "Practice Standards" which it introduced during its 2017 Annual Conference because, according to Tombs, "professionalism requires a set of common standards recognized by those calling themselves settlement planners as well as the consuming public."
• Tombs also announced that a committee of the SSP Board will be "modernizing" SSP's existing "Standards of Professional Conduct" because this current ethical code is "too structured settlement centric".
• Tombs, as well as other SSP members, believes that settlement planning represents a uniquely superior business model compared with traditional structured settlements. Most structured settlement annuity providers, according to Tombs, "[don't] understand the significance of settlement planning - or how it differs and/or relates to structured settlements."
• From a plaintiff or plaintiff attorney perspective, Tombs characterizes settlement planners vs. structured settlement brokers as "unfair competition". "My experience has shown," Tombs states, "that whenever a plaintiff attorney sees and understands the settlement planning model, they will never again be satisfied with a structured settlement broker who only offers one product as a solution for a client's comprehensive needs."

From an historic and strategic perspective, Tombs' message, indeed the message of the SSP 2017 conference more generally, appeared to S2KM to echo and amplify Joseph DiGangi's presentation during the NSSTA 2009 Winter Meeting which DiGangi termed "a wake up call for the [structured settlement] industry". At that time (2009), DiGangi proposed a "consultant" model for NSSTA members, with multiple products and services, as an alternative to the "annuity broker" structured settlement business model.

Characteristics of consulting model DiGangi proposed in 2009, not unlike SSP's current settlement planning model, included: planning orientation; solutions before products; blended products and services; product neutrality; compensation disclosure; professional training and designations; comprehensive skill sets and knowledge base.

Significantly, in 2009, DiGangi characterized structured settlement annuities as the "foundation product" for what DiGangi at that time termed "settlement consulting" - and settlement consulting as the new business model for structured settlement growth. For structured settlement consultants who lack the expertise, licensing or infrastructure to offer comprehensive solutions, DiGangi recommended teaming up with other professionals. DiGangi highlighted several transitional issues: licensing; conflicts of interest; collaboration models; and work process infrastructure.

Although NSSTA has not yet formerly embraced "settlement planning", NSSTA has formed a "Special Needs Attorney Task Force" and its 2017 Annual Educational Conference will feature an unprecedented (for NSSTA) number of special needs attorneys as speakers. Special needs attorneys play an increasingly important number of roles in personal injury settlement planning. Ringler, a founding NSSTA member and historically the largest structured settlement broker, recently re-branded itself as "Objective Settlement Advisors" and now claims to be "the largest settlement planning company in the nation."

Among several other interesting and educational SSP presentations (listed below), the following two related discussions were especially important for the future of SSP and settlement planning - again, from S2KM's perspective:

• "Turning Settlement Planning Into a Profession" - Kent Hansen presenter.
• "Registered Settlement Planner (RSP) Designation Update" - Joseph Tombs presenter.

Hansen's presentation was notable for several reasons. First, he acknowledged that "settlement planning" remains an emerging profession that has not yet achieved professional status. Second, he identified four SSP-related steps to elevate settlement planning to professional status: 1) the current re-focus of SSP; 2) updating SSP's (structured-centric) Standards of Professional Conduct; 3) renewing and upgrading the RSP Designation program; 4) adopting and embracing the proposed SSP Practice Standards.

Hansen also reviewed the proposed new SSP Practice Standards, which address the following issues, and which the SSP Board of Directors' Practice Standards Committee has approved and sent to the SSP membership for their input and consideration before the SSP Board meets to discuss, modify and most likely approve the Practice Standards at its upcoming April meeting :

• Practice Standard #1 - Identifying/acknowledging "client" as individual (potentially) receiving settlement proceeds.
• Practice Standard #2 - Defining the scope of the engagement including making required disclosures of material conflicts of interest and details of the planner's compensation.
• Practice Standard #3 - Defining the client's goals, needs and priorities relevant to scope of engagement.
• Practice Standard #4 - Obtaining information and documents.
• Practice Standard #5 - Analyzing information to match client's goals, needs and priorities with resources.
• Practice Standard #6 - Considering options and developing recommendations.
• Practice Standard #7 - Communicating recommendations to enable client to make informed decisions.
• Practice Standard #8 - Mutually agreeing on implementation responsibilities consistent with scope of assignment.
• Practice Standard #9 - Recommending appropriate products and services.
• Practice Standard #10 - Mutually defining monitoring responsibilities.

Finally, Hansen reviewed the settlement planning process which S2KM summarizes as follows: 1) identify the client; 2) establish the engagement; 3) define goals; 4) gather data; 5) analyze data; 6) develop options; 7) present options; 8) agree on implementation; 9) implement plan; 10) monitor plan. Hansen acknowledged the CFP Board's current Practice Standards as the source for these processes.

Tombs provided an RSP update which is newly organized and updated within a "Settlement Planning Education Center" (SPEC) website. SPEC, "an online education provider" for the settlement planning profession, is owned and operated by a public charity ("Friends of Settlement Recipients, Inc."), according to Tombs. An RSP Board, Tombs stated, owns and awards the RSP designation and approves, administers and promotes the program. Although the RSP is "independent" of the SSP, according to the SPEC website, SSP helped start RSP and supplied initial funding. The Missions of the RSP and the SSP are "congruent".

The SPEC website provides additional information about the RSP courses and the SPEC faculty and includes a detailed list of Frequently Asked Questions (with Answers) plus multiple "How-To" Videos. The RSP program is entirely online and self-paced. The total cost of the program will be "about $4750" per person. Additional contact information is available on the SPEC website.

The remaining SSP educational programs were topically diversified, well-organized and professionally delivered - easily matching the high standards of past SSP Annual Conferences. Additional topics and speakers:

• Settlement Taxation Update and Commonly Missed Savings - Jeremy Babener
• Are MSAs Required on Liability Cases? - Josh Pettingill; Joe Anderson; Patrick Hindert (moderator)
• The ACA's Impact on Special Needs Trusts - Pi-Yi Mayo
• ERISA, Medicare Advantage and Medicare Refunds - David Place
• Life Insurance in Settlement Planning - Michael Sharpe
• Trust-Based Comprehensive Settlement Planning - Beth Wheeler
• The ABLE Act - Tom Stanley
• Settlement Strategies for Cases Involving Public Benefits - Will Lindahl
• Using MoneyGuidePro in Settlement Planning - Larry Peterson; Cam Bowen; Joseph Tombs

Congratulations to SSP, especially Conference Chairs Steve Halterbeck and Rhonda Bentzen, for an outstanding 2017 SSP program and educational experience. For S2KM's reports on past SSP conferences, see the structured settlement wiki.

Structured Settlement 2016 Annuity Sales

Among many recent structured settlement industry developments, perhaps the most significant and impressive has been the continuation of sustained primary market annuity sales growth - especially in the context of various industry challenges. These challenges have included: 1) the aftermath of the ELNY insolvency; 2) continuation of historic low interest rates; 3) public exposure of unsavory secondary market business practices; and 4) a generational transition within the structured settlement industry.

Despite these challenges, primary market annuity sales (on a comparative basis with prior years) totaled $5.73 billion in 2016 (based upon 24,750 cases with an average case size of $231,478) according to industry estimates compiled and recently distributed by Melissa Price. 2016 sales totals compare favorably, and show a steady increase, compared with similar sales totals for these prior years::

• 2015 - $5.35 billion
• 2014 - $5.25 billion
• 2013 - $5.13 billion
• 2012 - $4.82 billion

For the first time, Ms Price's 2016 report included structured settlement annuity sales by USAA. Although USAA is a member of the National Structured Settlement Trade Association (NSSTA), it is S2KM's understanding that USAA is one of multiple "affiliated" life companies that limits its structured settlement sales to internal USAA claims only. Typically, because these companies don't compete for external business, they don't report their sales data.

Inclusive of USSA, 2016 structured settlement sales totaled $5.80 billion (based upon 25,201 cases with an average case size of $230,320. Even including USSA, the 2016 annual premium totals still fall short of the historic 12 month industry high ($6.2 billion in 2008) after consistently averaging close to $6 billion annually from 2001-2007.

It should also be noted, that while structured settlement premium has continued to increase since 2012, the number of structured cases has not noticeably increased - resulting in an ever-increasing average case size. This development may be explained by more structured settlement brokers transitioning to a settlement planning approach, which by definition targets larger cases. For example, Ringler, historically the largest U.S. structured settlement broker, has recently re-branded itself as "the largest settlement planning company in the nation."

Incorporating the USAA 2016 numbers, and adding the 2016 results to historic U.S. structured settlement totals, S2KM estimates the following primary market metrics from 1976 thru 2015:

• Total annuity premium: $156 billion.
• Total structured settlement cases: 879,000
• Average annuity premium: $177,474

Berkshire Hathaway continued its recent primary market leadership in 2016 by generating $1.504 billion of structured settlement annuity premium - a 15% percent increase from 2015. For the first time since 2011, two companies exceeded $1 billion in structured settlement annuity sales as Pacific Life increased its 2016 total to $1.186 billion from its year earlier total of $871MM - a 36% percent increase.

The U.S. structured settlement market now consists of nine NSSTA-member annuity providers who report their structured settlement annuity sales - down from more than 20 as recently as 2002. 2016 sales results (rounded in millions) for the seven other structured settlement annuity providers (per Ms Price's report) plus the rounded percentage increase (+) or decrease (-) from comparable 2015 results:

• MetLife: $815MM (+6%)
• Amgen: $688MM (+12%)
• Liberty Life: $513MM (-6%)
• New York Life: $487MM (+32%)
• Prudential: $399MM (-48%)
• Mutual of Omaha: $141MM (+44%)
• USAA: $72MM (first report)

Ms Price's 2016 compilation also reports an annual increase in annuity premium for non-qualified structured settlement assignments (from $190.3 million in 2015 to $199.2 million in 2016) as a portion of the overall structured settlement numbers. Non-qualified assignments represent transfers of periodic payment obligations that do not meet the requirements of IRC sections 130 and 104(a)(1) or (2) including deferred attorney fees.

From S2KM's perspective, several factors help to explain the sustained primary market sales growth:

• Increased Industry Unity - As former SSP President Neil Johnson pointed out in 2014, for many years, an historical lack of structured settlement industry unity created a drain - a drain on financial resources ... a drain on productivity ... a drain on our public image ... a drain on physical and emotional health. Lack of unity diverts attention from productive projects." Recent leaders of NSSTA, SSP and NASP have encouraged greater cooperation and focused their associations on more productive projects.
  • SSP - As an organization, SSP is no longer a political advocate for injury victims' rights. As Joe Tombs, its current President, stated in this recent S2KM interview: "A year ago, we decided to abandon taking 'political' positions.'' Instead, Tombs added: "1) SSP has substantially expanded its membership; 2) we have re-focused on professional settlement planning as our primary Mission and purpose; 3) we have pretty much put to bed the idea that we oppose NSSTA; and 4) we have developed a new set of Professional Practice Standards which we will introduce during our 2017 Annual Conference."
  • NSSTA - Although NSSTA continues to advocate for structured settlements, NSSTA has likewise undertaken its own initiatives toward achieving greater industry unification. As identified by former NSSTA President Michael Goodman in 2014, these initiatives have included: 1) a strong relationship with the AAJ; 2) improved dialogue with the SSP; 3) guest educational participation involving SSP and NASP representatives; 4) successful cooperation with NASP to enact revised structured settlement protection legislation in multiple states.
• Market Research - Among the structured settlement growth opportunities, expanded use by traditional stakeholders represents arguably the number one priority - a priority which NSSTA highlighted during 2014 by commissioning CLM Advisors to conduct a three-part survey of senior claims executives (Part 1); front line claims professionals (Part 2); and plaintiff attorneys (Part 3). For S2KM's summary and analysis of these surveys, see:
  • Senior Claim Executives
  • Claim Professionals
  • Plaintiff Attorneys
• Transitional Goals- During NSSTA' 2015 Annual Meeting, Goodman announced a series of transitional growth-oriented goals for NSSTA and its members: 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.
• Growth Initiative Committee - To help support these goals, NSSTA's Board of Directors 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." The first Growth Initiatives to be selected and approved:
  • Rejuvenate Defense Programs (including casualty insurers, commercial insureds and TPAs) - Originally the prime movers for structured settlements, many defense insurers have reduced or completely abandoned their structured settlement programs citing a variety of reasons.
  • Amend the Federal Employee Compensation Act - FECA, which provides workers compensation like benefits for federal workers, currently does not permit structured settlements.
  • Convertible Deferred Lump Sums - As a sales response to "low interest rates", the Growth Committee proposed a new structured settlement feature. As envisioned, the convertible deferred lump sum would allow a structured settlement recipient to select a future lump sum that would automatically convert on its payment date into a series of predetermined periodic payments payable at whatever annuity rates offered at the time of conversion by the issuing life company.
  Under current President Len Blonder and current Growth Committee Chair Sean Coleman, the number of Growth Initiatives continues to expand with assistance from new NSSTA Communications and Marketing Director Abbey Hudson.
• Educational and Lobbying Support - To support its Growth Initiative, NSSTA has also expanded both its educational and certification programming as well as its strategic lobbying and lobbying partnerships. Educational Committee Co-Chairs Jordan Bossler and Nolan Robinson, CSSC Co-Chairs Karen Meyers and Patricia Fairhurst, and their respective committees, plus Compliance and Administrative Director Debbie Sink provide NSSTA with its strongest-ever group of educational resources. NSSTA Executive Director Eric Vaughn, who also serves as Vice Chair of the American Association for People with Disabilities (AAPD) and manages the Congressional Structured Settlement Caucus , has continued to expand NSSTA's lobbying outreach thru strategic relationships with national special needs attorney associations.

Ms Price's reports do not provide information about the structured settlement secondary market. For S2KM's most recent estimates of secondary market metrics, see this prior blog post. Based upon industry sources, it is S2KM's understanding that structured settlement secondary market sales declined during 2016.

Interview with SSP President Joe Tombs

Joe Tombs is currently completing the first year of a two-year term as President of the Society of Settlement Planners (SSP). SSP's 2017 Annual Conference is scheduled for March 1-3 in Las Vegas. As Tombs prepares for this event, he agreed to answer a few S2KM questions about SSP's current status and future direction. In a prior S2KM blog post, Tombs responded to the AIG Class Action Lawsuit - stating SSP is "neutral" and that SSP, as an association, has decided as a matter of policy to abandon taking any “political” positions.

S2KM: Joe, thank you for agreeing to this interview. To further clarify SSP's new "no political positions" policy, you have also stated that SSP is now neutral about single-claimant 468B Qualified Settlement Funds - one of the most contentious issues within the primary structured settlement market during the past several years. Just to confirm, are you saying the SSP, as an association, no longer supports and/or will no longer advocate for single-claimant 468B QSFs?

TOMBS: That is correct. Our refusal to take a position should not be misunderstood to imply anything about our individual members. The SSP has been a zealous advocate of the single-claimant QSF in the past and I doubt any of our members have changed their opinions on the subject. We are not asking our members to suppress or to modify their own beliefs.

S2KM: What about factoring which arguably represents the most divisive political issue within the structured settlement market? If SSP is neutral, how do you explain SSP's current membership policy which to use your own words "is open to anyone interested in comprehensive settlement planning as long as they are not engaged in factoring". Doesn't SSP's membership policy itself represent a "political position"?

TOMBS: The SSP does not have an opinion on factoring. Several years ago, we held a conference in which many participants from factoring companies attended and participated. Their presence at our meeting annoyed some SSP members and a special meeting of members was called to address this issue. At that meeting, the membership voted almost unanimously to close off new membership to those applicants who were active in the factoring industry. We also decided not to expel the very few of our members who had drifted into factoring. Our individual members' views on factoring are varied and generally quite negative, but the reason factoring representatives are excluded from membership centers on the fact that we want to focus on planning at the time of settlement. (Tombs' emphasis). My personal opinion is that there is nothing wrong with a person who ethically engages in factoring, but that the world would be a net better place if factoring did not exist.

S2KM: What do you consider to be your most significant accomplishments during your first term as SSP President?

TOMBS: Recognizing we still have more than six weeks left to achieve first year objectives, I am especially proud of four accomplishments: 1) SSP has substantially expanded its membership; 2) we have re-focused on professional settlement planning as our primary Mission and purpose; 3) we have pretty much put to bed the idea that we oppose the National Structured Settlement Trade Association (NSSTA); and 4) we have developed a new set of Professional Practice Standards which we will introduce during our 2017 Annual Conference.

S2KM: How large is SSP and where are you finding new members?

TOMBS: I anticipate we will meet our goal of having 300 members by the time of our 2017 Annual Meeting. Many of our new members are trust officers, financial planners, special needs trust attorneys and staff from settlement planning practices. The new face of the SSP is truly the new faces at the SSP and the different perspectives they bring are propelling us forward in an exciting new direction.

S2KM: Have structured settlement annuity providers supported the concept of "comprehensive settlement planning"? If not, why not?

TOMBS: I don't think most structured settlement annuity providers understand the significance of settlement planning - or how it differs and/or relates to structured settlements. They are just beginning to wake up to the concept and realize how important and how effective the settlement planning model can be. My experience has shown that whenever a plaintiff attorney sees and understands the settlement planning model, they will never again be satisfied with a structured settlement broker who only offers one product. Think about what happened to flip phone providers when smart phones hit the market. I predict the same thing will happen with settlement planning. If structured settlement annuity providers wait too long to transition, trust companies will have captured first mover advantage.

S2KM: At one time, the term "settlement planner" was viewed by many structured settlement stakeholders as an inflated synonym for "plaintiff broker". How would you differentiate a professional settlement planner from a structured settlement consultant?

TOMBS: Until recently, that view was entirely accurate. A plaintiff broker would simply order new business cards with the new title ("Settlement Planner") proudly displayed. Today, however, that transition creates changes in expectations, applicable standards of care, and required levels of disclosure. A structured settlement consultant approaches an engagement with a product in mind. By comparison, a settlement planner (with access to multiple products) first gathers information about the goals of the injury victims and his/her family, analyzes the data, works out a written plan, and implements the plan. A settlement planner does not play the role of a structured settlement broker, if at all, until the last step.

S2KM: What is a "comprehensive settlement plan" and how does it differ from a "structured settlement"?

TOMBS: A structured settlement is a product. A "comprehensive settlement plan" is a blueprint. It is a written document that contains a summary of the detailed analysis of the client's situation, capacities, goals, priorities, needs, and resources - and the strategies and products that will best help that client use the settlement proceeds to successfully transition into a post-settlement life in a way that allows them to accomplish their highest priority goals. The settlement planner uses the plan to guide the injury victim through the settlement process. Many of my settlement plans do not include structured settlements, but most do.

S2KM: What role(s) do you see for structured settlement annuities in settlement planning?

TOMBS: Structured settlements provide tax-free guaranteed cash flows that can be matched to the exact time that the cash flow is projected to be needed. It is a valuable tool in a settlement planner's toolbox. Carpenters love their hammers, but I would never hire a carpenter who showed up to work with only a hammer.

S2KM: What is SSP's current relationship with NSSTA and what would you like it to be?

TOMBS: Most of the SSP members who produce structured settlements are also members of NSSTA. The SSP's past opposition to a few of NSSTA's political positions has frayed the relationship despite great strides to mend the fences by both sides. Today, the SSP leadership fully supports NSSTA and its Mission to preserve and protect structured settlements. I believe the two organizations are symbiotic - if one does better, so does the other.

S2KM: How are SSP and NSSTA different from SSP's perspective? Do we need two associations or should their efforts be combined?

TOMBS: SSP and NSSTA are two very different organizations with completely different Missions. We share a common ancestry, but we have evolved into separate species. The difference, which is evident in our names, is not subtle, semantic, or political. Today, most of our members, sponsors and seminar attendees do not even sell structured settlement annuities. Let that fact settle in for a minute and you will begin to comprehend the extent to which the SSP and settlement planning have evolved.

S2KM: What is the scope of SSP's new "Professional Practice Standards"? Will they Replace SSP's current "Standards of Professional Conduct"? If not, how are they different?

TOMBS: At our 2017 Annual Meeting, we will announce and release practice standards that will define settlement planning and authoritatively set out the scope of the practice of settlement planning. Don't expect something complicated. SSP's Professional Practice Standards will be simple, profound statements. They will be different from a Code of Ethics or our Code of Professional Conduct. Our current Code of Professional Conduct is too structured settlement centric and is currently under review by an SSP committee. I suspect it will receive major modifications soon.

S2KM: What is the current status of the Registered Settlement Planner (RSP) Program? How many professionals currently possess the RSP designation?

TOMBS: The RSP designation is administered by a separate Board. The number of RSP designees is small - probably just over twenty. The program was dormant for a long time and has now been freshly updated with several students enrolled.

S2KM: Looking ahead to your second term as SSP President, what are SSP's greatest challenges?

TOMBS: We can't grow the number of professional settlement planners fast enough to keep up with market demand. This forces us to focus on two goals - increasing our membership and increasing the professionalism of our craft. We are making progress on both fronts, but we simply cannot go far enough or fast enough to meet the demand. Another great challenge is that we face resistance from entrenched businesses that actively try to slow us down to allow them to catch up.

S2KM: Joe, thank you for taking time to participate in this interview. Congratulations for your progress with SSP and best of luck for another outstanding SSP educational conference March 1-3 in Las Vegas.

SSP President Responds to AIG Class Action Lawsuit

Based upon the history of the Society of Settlement Planners (SSP), and the role of Richard Risk (an SSP founder and member) as one of the plaintiff attorneys, structured settlement industry participants might assume that SSP, as an association, supports the recently filed AIG Class Action Lawsuit. When asked by S2KM, however, SSP President Joe Tombs provided an unexpected response. Tombs' detailed response appears below. For context, however, S2KM first provides a brief background summary plus a summary of the AIG Class Action allegations.

Historic Industry Divisions

Although some structured settlement industry pioneers, including the late David Ringler, the first President of the National Structured Settlement Trade Association (NSSTA) envisioned NSSTA as "a place where everyone and anyone [could] sit down with each other and discuss the issues and viewpoints regardless of beliefs", that utopian environment never fully materialized as multiple divisions developed within both the structured settlement market and the larger personal injury settlement consulting market. Examples include:

• Plaintiff vs. defense structured settlement brokers.
• Primary vs. secondary structured settlement markets.
• Structured settlements vs. settlement planning.
• Settlement annuities vs. settlement trusts.
• Settlement planning vs. special needs planning.

Among other results, the structured settlement industry now has both a primary and a secondary market and structured settlement industry participants with alternative issues, viewpoints, beliefs and educational interests have formed two national associations in addition to NSSTA: the National Association of Settlement Purchasers (NASP) and SSP. Although numerous and divisive issues have created serious political conflicts among these associations historically, leaders of all three associations have increasingly recognized and addressed the problems created by these conflicts.

During his three successive one year terms as SSP President, Immediate Past President Neil Johnson served as a powerful advocate for structured settlement industry unity. For example, as a guest speaker during NSSTA's 2014 Fall Conference, Johnson condemned lack of structured settlement industry unity as "a drain - a drain on financial resources ... a drain on productivity ... a drain on our public image ... a drain on physical and emotional health. Lack of unity diverts attention from productive projects. It always focuses attention on the negative, never on the positive. Lack of industry unity shows no partiality or favoritism for either NSSTA or SSP."

At the same time, Johnson proposed a "solution" for achieving structured settlement industry unity including these core elements:

• Recognizing and accepting product and professional diversity.
• Identifying and pursuing permanent shared interests without necessarily agreeing on all issues.
• Engaging all perspectives to discuss industry problems and issues.
• Promoting and practicing settlement planning with the structured settlement annuity as a core strategic product.

Among other highlights and milestones, the Society of Settlement Planners (SSP) 2016 Annual Conference transferred association leadership from Johnson to Joe Tombs with Tombs promising to maintain Johnson's leadership direction, which focused on structured settlement "industry unity", and also, in a dramatic policy shift, to "pull SSP back completely from structured settlement politics."

AIG Class Action Lawsuit

Earlier this month, three plaintiff attorneys, including SSP founder and current SSP member Richard Risk, filed a Class Action Complaint in United States District Court District of Massachusetts. Among its allegations, the Class Action Lawsuit accuses Defendant American International Group, Inc. (AIG), a NSSTA member, and several of its affiliates of: 1) RICO violations; 2) fraudulent conduct; and 3) unjust enrichment.

Although not named as Defendants, the Class Action Complaint also identifies multiple structured settlement brokers (most, if not all, members of NSSTA) who, according to the Complaint, are "known as 'Agency Partners' [and] have been on the AIG Approved Broker List within periods relevant to this Complaint, and are part of the racketeering enterprise at issue..."

Plaintiffs characterize the primary AIG business practice they allege is illegal as a "short-changing scheme" which they describe as follows: "Defendants’ practice to fail to disclose to Plaintiffs and other members of the Class numerous material facts concerning how AIG conducted its Structured Settlement Program including, among other things, that:

• "Defendants participated in a short-changing scheme designed to allow them to recover the cost of their own structured settlement brokers, by deducting the brokers’ fees from that portion of the settlement that the settling parties had previously agreed would be one hundred percent (100%) invested in future payments;
• "Defendants accomplished this “short-change” by bundling the amount of the broker’s commission—namely, four percent (4%)—into the illustrated annuity cost;
• "Even when the broker’s fee was not 4%, AIG would keep for itself whatever portion of the commission was not paid to the broker; and,
• "As a result of the scheme undertaken by Defendants, the actual financial value of the settlement was materially lower than the value represented to injury claimants since four percent (4%) of the full amount of cash to be invested in annuity was, in fact, diverted by AIG to pay for its own Approved Brokers and In-House Brokers."

Other Plaintiff allegations:

• "AIG uses a structured settlement annuity software and quoting system that is represented by it and the Approved Brokers (and In-House Brokers) as illustrating future projected payments based on the amount of funds previously agreed between the settling parties to be invested in the annuity. But this representation is not true, because it does not reflect the commission that is paid to the broker, which is hidden in the cost or present value of the annuity communicated to the claimant or claimant’s attorney."
• "In fact, AIG trains its employees in the Structured Settlement Program, as well as its Approved Brokers and In-House Brokers, not to disclose to claimants (or their attorneys when retained) the fact that the broker’s fee is bundled into the represented annuity investment cost."
• "AIG’s employees, its Approved Brokers, and In-House Brokers are also trained to conceal this scheme, in the event of claimant inquiries about the payment of commissions, by avoiding a direct answer to the question or, sometimes, by indicating that payment of annuity premiums from the defendant’s AIG-affiliated liability insurer to American General avoids commission as a cost to claimant."
• "The AIG Approved Brokers are also required to fund periodic payments with an American General or other AIG-related annuity, if at all possible. This requirement is called the 'first and last right of refusal'.”

The Complaint includes a footnote #1 (page 1) explaining/alleging that: 1) most structured settlement "producers" are inappropriately referred to as "brokers" when in fact they are "agents" appointed by life insurance companies; 2) Use of the term "broker" is misleading and communicates a false duty of loyalty to the consumer/injury victim; 3) although a producer may hold a life agent's license, he/she cannot bind the life company when writing an annuity application; and 4) this distinction becomes important for defining a racketeering "enterprise" under the RICO Act when considering the relationship of structured settlement producers to issuers.

SSP President Joe Tombs Responds

Based upon the political history of the SSP, and role of Risk as plaintiff attorney, the AIG Class Action Lawsuit appears to present a significant test for SSP - especially in light of Immediate Past President Neil Johnson's advocacy for structured settlement unity and current President Joe Tombs' promise for SSP to avoid structured settlement politics. When asked by S2KM whether or not SSP supports the AIG Class Action Lawsuit, however, Tombs provided the following response (with S2KM emphasis):

• "We are neutral – SSP has no position at all and we will not take one in the future. A year ago, we decided to abandon taking “political” positions. Advocacy for victim’s financial rights had been a central mission of the SSP since its founding and so it was hard to let that go. A pillar of the “old” SSP’s advocacy mission was opposition to many of the features of some of the casualty company programs. Therefore, many people are confused that we don’t have a dog in this fight. Everyone expects the SSP to rush out and take its normal spot in the circular firing squad and start blastng away or at least provide the forum for a mob to form. I’m sorry to disappoint people but we are neutral - on the AIG Class Action Lawsuit or any political issue such as single claimant 468B Qualified Settlement Funds. Individual SSP members have the option to support or oppose specific political issues. SSP, as an association, however, will not. Our priorities are growth and the promotion of professionalism in the practice of settlement planning - both of which we are accomplishing successfully.
• "Dick Risk is a founding member and we once honored him with a lifetime achievement award at which time we granted him lifelong membership. The SSP makes no attempts to muzzle or restrain our members. They are free to think, say, or do what they wish. We used to carefully guard our roll and membership was open only to plaintiff-only structured settlement brokers. Today, membership is open to anyone interested in comprehensive settlement planning as long as they are not engaged in factoring. Our membership includes a diverse group of structure brokers from most of the larger groups, trust company officers, financial planners, special needs trust attorneys, plaintiff attorneys and many others.
• "Separate from my role as President of SSP, I have my own opinion about the AIG Class Action Lawsuit. Part of my opinion is based upon a lunch I was honored to have in 1997 or 1998 with Hank Greenberg (then CEO of AIG) and Ernie Stempel (then President of North American Operations for AIG Life & Annuity). I remember Mr. Greenberg talking about a huge high-rise building with several floors full of nothing but lawyers. He then informed me AIG spent millions on outside counsel and had other AIG lawyers scattered across the globe. In my opinion, if AIG is right, they are more than adequately equipped to handle this case without help from me or anyone else.
• "Another part of my personal opinion is that I hate structured settlement politics and I am not smart enough or educated enough to know which side is right in this lawsuit. It is a fact, however, that many of my clients cannot chose from a full selection of structured settlement products or product providers - and another fact that my market quotes include fewer companies than they did a few years ago. I wish I could still quote Hartford, for example, but we know what happened after their class action settlement. So, although I can see the AIG battle lines forming, I don't have time for the fight myself. I have an appointment with a widow this afternoon and I only wish I could offer her and her freshly fatherless children a greater assortment of structured settlement options. And if a lawsuit against AIG should ever cause American General to withdraw from the structured settlement market, I would have a still shorter list of companies to offer my clients."

Joe Tombs is currently completing the first year of a two-year term as SSP President. SSP's 2017 Annual Educational Conference is scheduled for March 1-3 in Las Vegas. As Tombs is preparing for this event, he agreed to answer a few additional S2KM questions about SSP's current status and future direction. That interview will appear in a follow-up S2KM blog post.

SSP/ASNP 2016 Annual Conferences

Joint overlapping educational conferences hosted by the Society of Settlement Planners (SSP) and the Academy of Special Needs Planners (ASNP) March 9-12, 2016 in Tucson, Arizona provided S2KM and other attendees an opportunity to evaluate the current status of structured settlements within the larger, more complex personal injury settlement planning market. The SSP conference also transferred association leadership from Neil Johnson to Joe Tombs with Tombs promising to maintain Johnson's leadership direction and to "pull SSP back completely from structured settlement politics."

Among S2KM's conference conclusions: Many personal injury settlement planners characterize structured settlements as a strategic product, and recognize new marketing opportunities for structured settlements resulting from recent legislation such as the Affordable Care Act and the ABLE Act . The traditional and collective structured settlement industry should similarly embrace an important opportunity to grow its premium volume in this larger, more complex, more dynamic market than it has in the past by more effectively:

• Analyzing the evolving personal injury settlement and special needs planning markets;
• Addressing concerns and issues about structured settlements identified by plaintiff and special needs attorneys; and
• Re-positioning structured settlements from a single product sale to the core component of an integrated settlement solution.

SSP TOPICS AND SPEAKERS

• Introduction - Neil Johnson
• Comprehensive Settlement Planning - Joe Tombs; Charly Schell; Joe DiGangi; Tim Denehy
• Rules that Apply to Insurance Brokers - David Childers; Jeremy Babener
• The Grillo Case - Craig and Josephine (Grillo) Sullivan
• The Mraz Case - Mark Wilson and Patrick Hindert
• Sudden Money - John Darer
• Alternative Products - Martha Hunt; John Arendt; James Creel; Chris Shumate; Michael Upchurch; Rick Miller.
• Medicare Compliance, Entitlement Planning and Lien Resolution Issues - Anthony Prieto
• Joint ASNP/SSP Session - Structured Settlements and Special Needs Trusts - Frank Johns; Joe Tombs; Jack Meligan.
• ELNY and Factoring Industry Lawsuits - Edward Stone
• Small Business Legal Strategies - Paul Valentine
• Missed Tax Opportunities at Settlement - Jeremy Babener
• Foreign Assignment Companies - Jeremy Babener
• NSSTA's Survey of Plaintiff Attorneys - Patrick Hindert
• SSP President's Statement - Joe Tombs

ASNP TOPICS AND SPEAKERS

• ABCs of Public Benefits - David Lillesand
• ABCs of Special Needs and Settlement Planning - Kevin Urbatsch and Michele Fuller
• Keynote: "Raising Special Kids" - Maureen Beyers & Michael Farrell
• SSI Update - David Lillesand
• SNTs and Retirement Benefits - Melanie Marmion
• Recent Trends in Special Needs Planning - Blaine Brockman
• Joint ASNP/SSP Session - Structured Settlements and Special Needs Trusts - Frank Johns; Joe Tombs; Jack Meligan.
• "Tricky Issues" in SNT Administration - Travis Finchum; Herb Thomas and Daniel Cutter.
• Ask the Experts Panel - Kevin Urbatsch (Moderator)

DISCLAIMERS: Because of overlapping conference schedules, S2KM was able to attend only three ASNP presentations but did receive and has reviewed all ASNP conference handouts. S2KM's Managing Director, Patrick Hindert, testified as an expert witness in the Mraz case concerning structured settlement and QSF issues on behalf of Adriana and Addison Mraz.

S2KM COMMENTS AND RECOMMENDATIONS

SSP Leadership

• In his closing message as SSP President, Neil Johnson continued to emphasize several positive themes including industry unification and increasing collaboration between SSP and NSSTA. Among Johnson's proposed solutions for 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.
• Newly elected SSP President Joe Tombs promised to "maintain the direction of Neil Johnson's leadership and even accelerate it in every way possible." He identified the following "main themes" for SSP going forward: "to pull completely back from structured settlement “politics”, redouble our efforts at educating our members and promoting a Code of Ethics, and a membership push to quadruple our high water mark for number of members. We intend to actively encourage our members who sell structured settlement to join and to become actively engaged in NSSTA. We will continue to offer a hand of friendship and cooperation in their agenda although we will be decidedly apolitical. We will also make no attempt no manage our member’s opinions or their expressions of their opinions."
• As for structured settlements, Tombs stated: "we intend to emphasize comprehensive settlement planning which will have the natural result of de-emphasizing structured settlement annuities to some extent as we move alternatives including trusts, taxable annuities, investment accounts, etc. closer to the forefront. We will be increasingly product-neutral and more advice-driven and client-need-focused in the future." Note: despite Tombs' assertion, and perhaps somewhat counter intuitively, multiple SSP conference speakers maintained that settlement trust sales, in particular, have actually increased their sales of structured settlement annuities.
• Tombs also promised "to intensify [SSP's] efforts to stave off any further “infiltration" of our society by factoring companies and their employees. We will want to remain abreast of the goings on in that market as we have always attempted, but as a practical matter we are cutting off any new members or sponsors from that side of things."

Marketing Feedback - NSSTA Survey of Plaintiff Attorneys

• During 2014, the National Structured Settlement Trade Association (NSSTA) commissioned a three-part Structured Settlement Survey project, conducted by CLM Advisors, and previously reviewed by S2KM, of senior claims executives (Part 1), claims professionals (Part 2) and plaintiff attorneys (Part 3).
• Although NSSTA has made reports of all three surveys available to its members, and featured presentations about Part 1 and Part 2 at previous NSSTA educational conferences, NSSTA has not yet featured its Part 3 survey of plaintiff attorneys as an educational conference presentation. NSSTA has also prioritized "rejuvenating defense programs" as one of three preliminary "Growth Initiatives" with no equivalent current Growth Initiative focused specifically on plaintiff attorneys or personal injury settlement planning.
• As one SSP conference presentation, S2KM's Managing Director, Patrick Hindert, discussed S2KM's analysis of NSSTA's Part 3 Structured Settlement Survey which, in S2KM's opinion, provides valuable insights for improving structured settlement marketing and expanding and accelerating structured settlement premium growth. For example:
  1. Only 4% of the responding plaintiff attorneys viewed structured settlement consultants as adding value for negotiations and/or case evaluations separate from, or in addition to, their knowledge of structured settlements.
  2. 35% stated that structured settlement consultants fail to deliver value because they are concerned with structuring as much of a settlement as possible.
  3. 52% contact a structured settlement broker one week (possibly less) prior to a mediation.
  4. 38% make contact only after a case settles.
  5. Less than 25% are likely to have a client sign a letter acknowledging that they were exposed to the opportunity to structure a portion of their settlement before opting for an all cash settlement.
  6. Although 89% believe they "have adequate knowledge of structured settlements so that [they are] able to recognize when they would be in the best interest of an injured party...", only 28% said they suggest a structured settlement for cases involving Medicare set-asides (MSAs).
  7. Only 26% have ever structured their fees.

Settlement Planning - A Special Needs Perspective

• Most presentations by special needs attorneys at structured settlement conferences focus exclusively on special needs trusts. As one result, many structured settlement professionals fail to understand the broad and expanding scope of special needs planning - or how it impacts, overlaps with and differs from personal injury settlement planning. A similar misconception exists among special needs attorneys many of whom identify financial and insurance settlement planners exclusively with structured settlements. The title of the one joint SSP/ASNP presentation in Tucson ("Structured Settlements and Special Needs Trusts") re-enforced this misconception. Fortunately and positively, the actual presentation discussion, moderated my Jack Meligan and featuring Frank Johns and Joe Tombs, addressed a broader agenda.
• Separately, both the ASNP and SSP conferences featured multiple presentations which captured the expanding expertise of their respective members. For structured settlement professionals, S2KM found ASNP's two "Pre-Session" presentations ("The ABCs of Public Benefits" by David Lillesand and "The ABCs of Special Needs and Settlement Planning" by Kevin Urbatsch and Michele Fuller) especially informative. Also recommended for structured settlement professionals seeking a more comprehensive understanding of special needs planning: Blaine Brockman's presentation ("Recent Trends in Special Needs Planning"),
• Urbatsch and Fuller speak and write frequently about personal injury settlement planning and are recognized as leading national settlement planning experts among special needs attorneys. Their settlement planning presentations frequently discuss structured settlement "issues" - often with negative connotations and without rebuttal or explanations from structured settlement experts. What follows are structured settlement "issues" Urbatsch and Fuller identified in Tucson. In S2KM's experience: 1) many special needs attorneys agree with these issues; and 2) structured settlement proponents need to proactively respond to these issues - or risk continuing/increasing loss of potential annuity premium:
  • "Income stream is inflexible and cannot respond to emergency or major cash needs;
  • "High initial fees;
  • "Investment returns nearly always lower than what a diversified portolio would produce;
  • "Big ticket items, such as a home, cannot be easily acquired;
  • "Unscrupulous settlement planning brokers over-structuring because of high commission;
  • "Little regulatory oversight over industry – no fiduciary responsibility or licensing required to sell;
  • "Misleading statements about flexibility;
  • "How it fits into Plaintiff’s overall financial plan?

The Grillo Case

• The Grillo case, which establishes potential legal liability for plaintiff attorneys who do not advise their clients about structured settlements, was the subject of an SSP conference presentation by Craig and Josephine (Grillo) Sullivan. The Sullivans shared the remarkable life story of their daughter, Christina, the Foundation she inspired and the Texas State Statutory amendment her case helped to enact.
• For structured settlement brokers and settlement planners, the Grillo case provides a logical starting point for discussing structured settlements with plaintiff attorneys. As a point of comparison, consider response #5 above under "Marketing Feedback - NSSTA Survey of Plaintiff Attorneys."
• Another important settlement planning "takeaway" from the Sullivans' SSP presentation: both Craig and Josephine emphasized the value of Christina's original life care plan which served as a care management "roadmap" throughout Christina's life accurately predicting future needs and developments which the Sullivans would not otherwise have anticipated.
• This important observation, provided by the only care givers to appear as speakers at the combined SSP/ASNP conferences highlights an important settlement planning issue: Why do other settlement planning professionals ignore life care planners - especially considering their strategic role defining "future needs" for personal injury damage analysis, as well as future expense allocations for Medicare set-asides and Affordable Care Act coverage? For examples:
  • As leading nurse life care planner Wendie Howland stated in this 2014 S2KM interview: "I have never been asked to review a settlement plan to see how well it matches my recommendations."
  • The Urbatsch/Fuller presentation summarized above which identified multiple professionals for the "Settlement Planning Team", omitted life care planners.
  • "Comprehensive" settlement plans S2KM has reviewed typically don't include any life care plan, or other document, providing a detailed "needs analysis".
  • With the exception of the National Alliance of Medicare Set-Aside Professionals (NAMSAP), a majority of whose members are life care planners, none of the many structured settlement or settlement planning conferences S2KM has attended during the past several years has offered specific presentations addressing the topic of "needs analysis" - or, with rare exceptions, featured a life care planner as presenter.
  • Key related issues: 1) what does "needs analysis" mean in the settlement planning context? Who is qualified, if not life care planners, to provide "needs analysis" for settlement planning? What is the relationship between a life care plan prepared for trial (damage analysis) and a life care plan for settlement planning? Who, besides a life care planner, is qualified to transpose one to the other?

The Mraz Case

• The traditional objective and responsibility for plaintiff attorneys in personal injury cases has been to obtain the largest amount of compensation for their clients whether by judgment or settlement. By this standard, the law firm Lief, Cabraser, Heimann & Bernstein was notably successful in obtaining a $55 million verdict and subsequent $24 million settlement in 2009 against Chrysler in the Mraz wrongful death case.
• Settlement planning, in general, and structured settlements, more specifically, however, prioritize an additional set of objectives and responsibilities for plaintiff attorneys. As a result, when the Lief, Cabraser law firm failed to obtain a structured settlement for Addison Mraz, the minor daughter of the deceased, after her mother, Adriana Mraz, allegedly requested Lief, Cabraser to obtain a structured settlement on Addison's behalf, Adriana brought a lawsuit alleging Lief, Cabraser attorneys breached the duty of care they owed to Addison.
• On December 22, 2015, among other findings, a California trial court jury determined Lief, Cabraser attorneys did not breach the standard of care or any fiduciary duty they owed Addison Mraz. Nevertheless, unrelated to damages associated to the loss of the structured settlement, the jury awarded Addison Mraz $400,000 of fees and costs she previously paid to Lief, Cabraser. The case is currently on appeal.
• Mark Wilson, the attorney who represented Adriana and Addison Mraz in their lawsuit against Lief, Cabraser, was a featured speaker at the SSP conference. Based upon the Marz case, and regardless of what occurs on appeal, Wilson highlighted the following structured settlement responsibilities as potential duties of care for plaintiff attorneys and recommended that structured settlement professionals and settlement planners utilize CLE programs to educate plaintiff attorneys about their potential liabilities. Plaintiff attorneys should:
  • Educate themselves about structured settlement issues including how to avoid constructive receipt as well as the appropriate utilization of QSFs and non-qualified assignments.
  • Recommend competent structured settlement professionals to clients (and retain them for advice) prior to settlement negotiations.
  • Insert appropriate language in term sheets and/or settlement agreements to preserve clients' structured settlement options.
  • If and when necessary, know how to correct mistakes to preserve or re-establish their clients' structured settlement options.

Plaintiff Broker Diversification

• The most successful plaintiff structured settlement brokers appear to be diversifying their products and services. It works, according to SSP speaker Anthony Prieto, "because it changes the conversation from a marketing perspective. There are a lot more people who want to talk to me about updates in MSP compliance or lien resolution than structured settlements. You see more cases when you offer other services. You become a problem solver as opposed to a problem identifier."
• Prieto identified multiple sources of alternative revenue now available to settlement planners in 2016: alternative products (retail annuities, life insurance, managed money); trust company fees or referrals; lien resolution or verification fees or referrals; MSP compliance fees or referrals; attorney fee deferral programs; QSF referrals and administration fees.
• Although one SSP panel, discussing "Comprehensive Settlement Planning", emphasized the importance of "planning before products", another SSP panel spoke specifically about expanding opportunities for alternative (non-traditional structured settlement) settlement planning products: Martha Hunt (equity-indexed annuity riders); John Arendt (reinsurance); James Creel (settlement trusts); Michael Upchurch (rehabilitation facilities); Rick Miller (indexed annuities).
• Consistent with the themes of "diversification" and "changing the conversation", John Darer made a convincing case for "transition expertise" as a critical settlement planning skill.
• What potential professional liability issues accompany plaintiff broker product and service diversification? The SSP conference did not directly address this issue comprehensively.
  • Speaking about "ELNY and Factoring Industry Lawsuits", attorney Edward Stone asserted that the "New Normal" (i.e. personal injury settlement planning) will not work if the core product (i.e. structured settlements) does not work. Focusing specifically on structured settlements, Stone asked whether a broker (plaintiff and/or defendant) owed any duty of care - and to whom? Also whether split commission arrangements changed the analysis? Based upon ELNY, he offered several related lessons for settlement planners.
  • Insurance law expert David Childers provided SSP conference attendees with a traditional analysis of standards of care and duties of care for insurance brokers, agents and producers under Arizona law.

CONCLUSION: Personal injury settlement planning is a large, complex, dynamic marketplace within which structured settlements historically has represented a strategic, if arguably under performing, product. The traditional structured settlement industry has heretofore avoided the educational analysis and strategic association relationships necessary to help its "New Generation" membership successfully transition to the "New Normal". It remains to be seen whether, when and how successfully future industry leadership will figure out how to put old wine in new bottles. Based upon this year's joint SSP/ASNP conference (and mixing metaphors), it appears the "New Normal" train is already leaving the station with a diversified cargo of blended products and services.

For additional S2KM analysis about personal injury settlement planning, see the structured settlement wiki.

SSP 2015 Annual Conference - 1

The U.S. structured settlement industry consists of three national professional associations - the National Structured Settlement Trade Association (NSSTA), the Society of Settlement Planners (SSP) and the National Association of Settlement Purchasers (NASP) - whose political differences frequently obscure their shared existential interests and, until recently, have restricted their opportunities for mutually-beneficial collaborative education.

NSSTA's 2014 Fall Educational Conference highlighted the issues of "generational change and challenges" and served as a precursor for improved association relationships by featuring SSP President Neil Johnson and NASP President Patricia LaBorde as guest speakers.

The SSP 2015 Annual Conference, to be held March 29-31 in Las Vegas will substantially expand this new educational chapter of industry dialogue by hosting an unprecedented number of association leaders as speakers. Among the highlights will be a repeat engagement of NSSTA's 2014 "Presidents' Panel" featuring current NSSTA President Kevin Silo and SSP President Johnson. Titled "Collaboration for the Greater Good", and moderated by Patrick Hindert, this panel promises to "doubledown" on solutions for achieving industry unity.

Additional association leaders scheduled to speak at the SSP Conference:

• Eric Vaughn - NSSTA's Executive Director is expected to emphasize the shared interests of all structured settlement professionals including plaintiff and defense representatives as well primary and secondary market participants. These shared interests being the protection and preservation of IRC sections 104(a)(2) and 130 plus the future growth of the primary market.
• Earl Nesbitt - NASP's Executive Director will be joined by Rhonda Bentzen, SSP 2015 Conference Chairperson and secondary market expert, to follow-up SSP's groundbreaking 2014 secondary market panel which first opened educational dialogue between primary and secondary structured settlement professional associations.
• Jack Kelly - NASP's lobbyist, who also spoke at last year's SSP conference, will provide his perspective on political changes taking place in Washington D.C. and how they might impact structured settlements.
• Kevin Urbatsch - The National Director of the Academy of Special Needs Planners (ASNP) recently introduced and helped organize ASNP 12-part "Settlement Planning" webinar series. In Las Vegas, Urbatsch will address recent attacks by the Social Security Administration on litigation-generated special needs trusts.
• Wendie Howland - Editor of the American Association of Nurse Life Care Planning (AANLCP) Journal, Ms. Howland will discuss settlement planning from a life care planning perspective. She will highlight the increasing role of life care planners in allocating damages for Medicare set-asides (MSAs) and as a result of the Affordable Care Act. In addition, she will advise structured settlement consultants and settlement planners how to better utilize life care plans to improve their own work product.

Additional SSP speakers and topics:

• Joseph Dehner - A prominent international attorney and co-author of the legal textbook "Structured Settlements and Periodic Payments", Dehner will discuss "Off-Shore Funding Companies" and their increasing role in the structured settlement market.
• Joseph DiGangi, Shannon Fitzgerald and Phillip Kruse - this panel of experts, moderated by Patrick Hindert, will analyze the application of "fiduciary standards" to settlement planning and settlement planners. Their presentation will feature a case study, review SSP's Standards of Practice, discuss NAIC Model Regulations, consider the 2006 Saltzburg/Chemerinsky memos, and suggest best practices.
• Edward Stone - A legal representative for many Executive Life of New York short-fall victims who continues to seek restitution for his clients, Stone will offer his opinion as to whether some settlement planners remain at risk in the ongoing ELNY litigation.
• Joseph Tombs - A lawyer, certified financial planner and former SSP President who helped organize SSP's Registered Settlement Planner (RSP) certification program, Tombs will outline his recommended process for developing a settlement plan.
• Jack Meligan - Also a former SSP President as well as a recognized settlement planning expert, Meligan will provide an MSA update with his perspective on how MSAs fit into settlement planning.
• Jeremy Babener - A prodigious structured settlement author and industry tax expert who also serves as Chairman of SSP's Legal Committee, Babener will introduce SSP's new website and discuss new SSP Legal Committee initiatives.
• Bryn Poland - A leading Qualified Settlement Fund (QSF) expert, who has served as attorney, trustee and/or administrator for numerous QSFs, Ms Poland will explain how and why the multi-claimant QSF market is growing rapidly despite the single claimant pullback within the structured settlement market.

For S2KM's reporting about prior structured settlement and settlement planning professional conferences, see the structured settlement wiki.

Evolve 2014 QSF Symposium

Despite unresolved issues, utilization of IRC 468B Qualified Settlement Funds (QSFs) in "single event" cases, as well as class action and mass tort cases, is expanding, and increasingly represents the preferred method for resolving complex personal injury claims, according to participants at the Third Annual QSF Symposium sponsored by Evolve Bank and Trust on November 14, 2014 in Memphis, Tennessee.

Various speakers estimated the number of QSF cases annually currently exceeds 2500, equally split between single event cases and class action/mass tort cases, increasing by 25% per year. This expansion has occurred as more settlement planning stakeholders learn about the advantages of QSFs - and despite single claimant QSF tax uncertainty.

Although Rev. Proc. 93-34 permits QSFs to make IRC 130 qualified assignments, and no tax authority exists prohibiting single claimant QSFs, structured settlement annuity providers currently refuse to accept single claimant QSFs which they broadly define to encompass claims by family members, plaintiff attorneys, lien holders and creditors.

Organized "to provide a forum for open dialogue that helps shape industry developments", the 2014 QSF Symposium completely avoided the single claimant controversy and focused instead on other important QSF and settlement planning issues.

Topics and Speakers

• Introduction and Welcome - Andrew Cook
• QSF Administrator Control Systems and Fraud Protection - Brian Berning
• QSF State Tax Issues - Mike May
• Tax Issues for Foreign Structured Settlement Assignment Companies - Jeremy Babener
• Calculating Settlement Awards - Chris Lordan
• QSF Settlement Planning Panel - Patrick Hindert (Moderator), Andrew Cook, Wendie Howland, Pi-Yi Mayo, Bryn Poland, Joseph Tombs.
• How New SEC Rules Impact QSF Money Market Fund Investments - John Rush.
• How Plaintiff Attorneys View QSFs - William Burns
• QSF Administrator Compensation Issues - Paige Balnum; Pi-Yi Mayo; Bryn Poland.
• QSF Attorney Fee Programs - Chris Shumate.

QSF Objectives and Benefits

In his legal treatise, "Qualified Settlement Funds and Section 468B", published in 2009, Robert Wood explains QSFs as follows: "Their primary objective is to gather and administer cash or assets and determine the amounts and exact nature of payments that the plaintiffs, attorneys, and other claimants will receive..... QSFs benefit both plaintiffs and defendants alike. They are separate entities for federal income tax purposes and are flexible and easy to establish."

Section 3.08B of "Structured Settlements and Periodic Payment Judgments" (S2P2J) summarizes the benefits of QSFs in more detail: "defendants obtain a binding release from liability by making a currently-deductible payment into a court or government-approved Fund; while claimants, who have no tax consequence as a result of this payment into a Fund, are then afforded as much time as they need to sort out important issues of their own, such as allocating settlement shares, obtaining court approvals for minors or other legally-disabled claimants, resolving liens (which sometimes involve complex pay-back and set-aside issues as to Medicaid and Medicare), and deciding on forms of distribution (whether cash, structured settlements, or special needs trusts that may be used to preserve eligibility for certain government benefits)."

QSFs reconfigure the traditional (ready; shoot; aim) settlement planning process:

1. Needs assessment
2. Design
3. Negotiation
4. Implementation
5. Monitoring

so that needs assessment and settlement design follow the negotiation (and funding) steps rather than precede them.

Highlighted Issues

• QSF Administrator - The QSF Symposium emphasized the important role of the QSF administrator as well as the services he or she may provide and/or require including: investment, expense and distribution management; tax reporting and filing; legal and regulatory compliance; and fraud control. The QSF administer appears best positioned to quarterback the QSF settlement planning team. An apparent need exists for more (and better qualified) QSF administrators.
• Life Care Planners and Case Managers - Life care planners and case managers are frequently overlooked in traditional settlement planning. Life care planners are rarely asked to revise their pre-trial and trial-focused life care plans to account for collateral sources or the actual amount of settlement funding. Case managers (who are separately certified) increasingly are retained to "monitor" settlement plans by providing post-settlement medical advice and services for serious personal injury victims.
• Compensation Issues - For QSFs to achieve their potential improvements for single event settlement planning, multiple compensation issues must still be addressed and resolved:
  • Administrators - The QSF Symposium devoted one of its panels to administrator compensation issues, including: who pays their fee? what fee is appropriate for what services? and how should the fee be calculated (flat fee; per claimant fee; or fee based on QSF earnings)? Complicating these issues, many attorney QSF administrators play multiple roles (trustee; administrator) in addition to drafting QSF documents and making court appearances.
  • Structured settlement brokers - In many single event QSFs, the plaintiff structured settlement broker plays key roles: 1) selecting and paying the QSF administrator; 2) performing "value added" settlement planning services as part of his/her contingent commission compensation. Not only do these arrangements create potential conflicts of interest ("needs based" selling determined by the needs of the broker and administrator), they also increase a broker's risk of loss in the the event of an unsuccessful structured settlement sale.
  • Additional compensation issues arise when: 1) a case settles with no allowance for QSF expenses; 2) a case involves minors or incompetents requiring a guardian and court to approve QSF expenses; and also because 3) in the current low interest rate environment, QSF fees often exceed investment yields. Although not discussed during the Symposium, defense structured settlement brokers have opposed QSFs fearing a reduction or the elimination of their contingent commission compensation.
• Tax topics - The QSF Symposium featured three tax topics:
  • State taxation - State taxation of QSFs is inconsistent with little guidance. Many states have not yet addressed QSF taxation. Potential penalties exist for failure to file including interest on any unpaid liability without any statute of limitations. QSF administrators are advised to follow a two step analysis: 1) can a specific state tax a QSF based upon the situs of the court or the administrator or the bank where funds are deposited? 2) assuming a filing obligation exists, how will a state tax a QSF - as a corporation or a trust?
  • Foreign structured settlement assignment companies - Potential tax issues exist for defendants, plaintiffs and the foreign assignment company. Can a defendant deduct its payment to a foreign assignment company? When does a plaintiff receive payments for tax purposes and what is the character of those payments? Does the foreign assignment company recognize income when it receives an assignment payment? If yes, will it be considered active or passive income or does a treaty override exist?
  • Structured attorney fees - When properly arranged, structured attorney fees allow a contingently-compensated attorney to defer portions of his or her compensation and pay tax upon receipt regardless of the type of case or whether the client receives a lump sum or periodic payments.
• Education issues - Single event QSF education is needed for plaintiff attorneys and judges who are still unfamiliar with the QSF concept. Among the most likely education providers are special needs attorneys who serve as QSF administrators or trustees and structured settlement brokers. In addition to litigating attorneys and judges, QSF educational targets should include other settlement planning stakeholders such as: liability insurers; settlement trustees, guardians; mediators; and life care planners.

Conclusion - Evolve's QSF Symposium offers a valuable and unique addition to the growing number of personal injury settlement planning conferences and educational resources. When Robert Wood's QSF legal treatise was published in 2009, he acknowledged his analysis "clearly enters unchartered ground". Congratulations to Chairman Andy Cook and Evolve Bank and Trust for helping to survey this unchartered QSF terrain by sponsoring an educational event specifically designed to promote discussion and exchange of ideas about QSF issues, standards and best practices.

For S2KM's complete coverage of 2014 structured settlement and settlement planning conferences, see the structured settlement wiki.

ASNP Settlement Planning Webinar Series - 1

The Academy of Special Needs Planners' (ASNP) 12-part "Settlement Planning" webinar series , which begins today, offers an important educational opportunity to learn more about this evolving profession. Evaluated in advance, based upon its online descriptive materials:

• The strengths of this webinar series appear to be the quality of the presenters and the broad scope of topics to be addressed.
• The primary omission and challenges appear to be:
  • Not including a life care planner presenter to explain the critical role life care plans play in settlement planning "needs analysis".
  • Addressing and defining: 1) settlement planning market metrics; and 2) how various settlement planning professionals integrate their work product - and at what individual and overall cost.

Despite multiple professional associations, participants and conferences, as well as legislative and regulatory developments, personal injury settlement planning (settlement planning) remains an evolving concept and market with competing definitions, standards and business models and many unanswered questions.

Settlement planning has been defined as both a process and a profession - and also represents a largely undefined market.

Kevin Urbatsch, ASNP's National Director and introductory webinar presenter, defines settlement planning as "the process of ensuring that a plaintiff who has a significant disability, lacks capacity, or has a complex financial situation will receive his or her litigation proceeds in such a way that it fully enhances his or her quality of life."

Joseph Tombs, Director of the Society of Settlement Planners (SSP) Registered Settlement Planner (RSP) certification program, has defined settlement planning as "a profession helping recipients of settlement proceeds use those proceeds to achieve post-loss goals and transition successfully to post-settlement financial life."

With the exception of the structured settlement market (which generated an estimated annuity premium of $5.1 billion in 2013 and $139 billion from 1975-2013), the size of the United States settlement planning market and its various component markets has not yet been defined. Based upon industry sources, S2KM estimates the 2013 structured settlement secondary market resulted in 12,800 transfers (factoring transactions) and generated $385 million PV of secondary market purchases.

S2KM estimates more than $170 billion of annual United States tort costs represents payments to personal injury victims and their attorneys based upon Towers Watson's most recently published "Annual Studies of United States Tort Costs", and utilizing Towers Watson's 2002 "best estimate" formula for calculating payout percentages. Towers Watson's tort cost studies historically exclude property losses, workers' compensation payouts and no-fault claims.

Founded in 2000, SSP has published "Standards of Professional Conduct for Settlement Planners" and sponsors an annual educational conference as well as a settlement planning certification program. To S2KM's knowledge, however, neither SSP nor any other professional association has addressed, in a comprehensive manner, basic questions about "settlement plans" (see below) - presumably the most fundamental and important settlement planning work product.

Especially because of inadequate information about the settlement planning market and collaborative work product, ASNP's webinar represents a valuable opportunity to advance industry knowledge and better define settlement planning as a strategic and evolving process, profession and market.

Related questions S2KM hopes one or more of the ASNP webinar presenters (or subsequent settlement planning conferences) will address:

• Who comprises (and selects) the settlement planning team?
• What criteria and process (e.g. request for proposal) are appropriate for selecting members of the settlement planning team?
• What professional licenses and certifications are applicable?
• What work product does each settlement planning team member provide?
• Who integrates their individual work product into a settlement plan - and how?
• When is a settlement plan appropriate?
• What are the standard components of a settlement plan?
• What does a settlement plan cost?
• What settlement planning licensing and e&o coverage are necessary and applicable to protect customers?
• What does a settlement planning " fiduciary standard " mean in terms of: " best interest ", " full disclosure " and " informed consent "?
• What other metrics (besides cost) are appropriate for evaluating the success of a settlement plan?
• How are settlement planning team members compensated?
• What alternative compensation methods and/or business models would allow settlement planning to become more efficient and/or reduce costs?
• Once implemented, who has responsibility to monitor and/or amend the settlement plan?
• Which professional associations include " settlement planners " and what relevant certification programs do they offer?
• How does settlement planning differ from special needs planning? ASNP's earlier 12-part "Special Needs Planning" webinar series provides a framework for analyzing this issue.

S2KM summaries of past ASNP educational conferences:

• 2007 ASNP Annual Meeting
• 2008 ASNP Annual Meeting
• 2009 ASNP Annual Meeting
• 2010 ASNP Annual Meeting
• 2011 ASNP Annual Meeting
• 2012 ASNP Annual Meeting
• 2013 ASNP Annual Meeting
• 2014 ASNP Annual Meeting

For additional S2KM reporting about settlement planning, see the structured settlement wiki.

SSP 2014 Annual Meeting

"Unification not polarization!" Society of Settlement Planners (SSP) President Neil Johnson espoused this principle in his keynote address as the theme for SSP's 2014 Annual Meeting and Educational Conference.

Current industry polarization as identified by Johnson, and discussed by other SSP conference speakers, arguably encompasses:

• Plaintiff vs. defense structured settlement brokers.
• Primary vs. secondary structured settlement markets.
• Structured settlements vs. settlement planning.
• Settlement annuities vs. settlement trusts.
• Settlement planning vs. special needs planning.

Johnson's SSP keynote speech also highlighted and proposed solutions for industry polarization: 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.

Johnson, and subsequent SSP speakers, addressed one of the most diverse gatherings ever of structured settlement and settlement planning industry leaders. Speakers and attendees included members of NSSTA, NASP, NAMSAP, ASNP, SNA, NAELA and SSP as well as lien resolution experts, mass tort administrators, life care planners, settlement trustees, annuity providers and bloggers.

Except for Johnson as SSP's President, speakers expressed personal opinions and did not appear as representatives of other professional associations.

SPEAKERS - By Category and Listed Alphabetically

• Settlement Planners / Structured Settlement Broker/Agents - Michael Goodman; Donald McNay; Joseph Tombs.
• Structured Settlement Attorneys - Jeremy Babener; Stephen Harris; Patrick Hindert; Earl Nesbitt; Edward Stone.
• Product Providers - Daniel Durbin; David Hickey.
• Special Needs Attorneys - Michele Fuller; Kevin Urbatsch.
• Medicare Set-Aside (MSA) Experts - Christine Melancon; Sally Stalcup.
• Lobbyist - Jack Kelly.
• Social Media - Megan Hargroder.
• Customer Service - Bruce Loeffler.

S2KM Comments

Settlement Planning - S2KM has written previously (see: AAJ 2014 Winter Meeting) about expanding products and services offered by plaintiff structured settlement brokers. Joe Tombs' SSP presentation expanded this list and proposed a "fiduciary standard" for settlement planners. For personal injury settlement planning to emerge as a recognized profession, however, SSP (and/or other settlement planning participants) needs to address these fundamental questions:

• Which professionals and professional skill sets are needed to construct a settlement plan?
• What professional work product results in a settlement plan?
• What are the standard components of, and documentation for, a settlement plan?
• How much does it cost (professional fees, commissions, etc) to produce a settlement plan?
• What would a settlement planning "fiduciary standard" mean in terms of: "best interest", "full disclosure" and "informed consent"?
• What settlement planning licensing and e&o coverage are necessary and applicable to protect customers?
• Which professional associations include "settlement planners" and what certification programs do they offer?
• What settlement planning business models currently exist?

Industry Unification - SSP's 2014 conference represents a strategic milestone and challenge for future educational programs sponsored by structured settlement and settlement planning professional associations.

• SSP spotlighted structured settlement and settlement planning polarization as the foremost industry problem.
• SSP President Neil Johnson proposed sensible solutions which other SSP speakers echoed and effectively endorsed.
• Without endorsing specific speakers or topics, SSP's conference agenda addressed critical and divisive industry issues - and featured speakers offering alternative perspectives.
• SSP conference speakers and attendees represented an unprecedented gathering of settlement planning industry leaders.

Industry Game Changers - Speaker Michele Fuller's list of settlement planning "game changers" did not mention Executive Life of New York (ELNY) or the structured settlement secondary market - two divisive issues of continuing importance addressed by other SSP speakers (Edward Stone and the secondary market panel, respectively). Her Top-10 list, however, provides a baseline for future discussions among industry associations and participants:

1. Affordable Care Act.
2. Lien resolution statutory and regulatory developments.
3. Federal recognition of same-sex marriages.
4. Wrongful death caps determined unconstitutional.
5. State and federal tax reform.
6. Potential reductions in social security benefits.
7. MSAs in liability cases.
8. Settlement planning goes cyber.
9. Increasing need for Qualified Settlement Funds.
10. Increasing number of persons with disabilities.

Congratulations to SSP, and especially conference chairperson Rhonda Bentzen, for maintaining SSP's noteworthy quality standards for its annual educational programs.

For S2KM reporting about prior educational conferences sponsored by SSP and other structured settlement and settlement planning associations, see the structured settlement wiki.

Settlement Planning Market - 1

Following three 2012 settlement planning conferences, what have we learned, and what do we still need to know, before settlement planning can be recognized and analyzed as a business and professional market?

The settlement planning conferences provided:

• Definitions for Settlement Planning - Joseph Tombs, Director of the Registered Settlement Planner (RSP) certification program, defined settlement planning as "a profession helping recipients of settlement proceeds use those proceeds to achieve post-loss goals and transition successfully to post-settlement financial life. Settlement planners represent a blend of several professionals: part tax lawyer, trial lawyer, special needs lawyer, financial planner, annuity specialist, social worker, and medical case worker."
• Descriptions of an Emergent Profession - Several conference speakers described settlement planning as a larger and more complex successor business and profession for structured settlements. For example, Jack Meligan stated: "SSP and its members have been promoting the practice of Settlement Planning as a more comprehensive solution for the financial issues facing personal injury victims and their families, and the profession of Settlement Planning as the next evolutionary step for members of the financial and legal communities that serve these injured Americans."
• Product Introductions and Descriptions - In addition to structured settlement annuities, conference speakers discussed multiple financial and insurance products in the context of settlement planning including: settlement trusts; blended structures; alternative asset management options; market linked CDs; long term care insurance; life insurance; and reinsurance.
• Government Benefit Updates - Integrating financial and insurance products with available government benefits represents one of the most important settlement planning priorities and requires effective interaction among multiple settlement planning participants. The conferences highlighted settlement planning roles for special needs attorneys as well as financial and insurance professionals. In addition, government benefit developments related to settlement planning were discussed including new requirements for liability Medicare Set-Asides (MSAs) and special needs pooled trusts as well as the Patients Protection and Affordable Care Act.
• Tax Law Updates and Improvements - In addition to integrating tort settlement proceeds with government benefits, settlement planning requires careful tax planning and specialized document drafting. The SSP conference featured Robert Wood and Jeremy Babener, who provided tax law tips and updates for settlement planners, as well as David Higgins, who proposed a potential tax law alternative to expand the use of structured settlement annuities in settlement planning.
• Business Standards and Practices Discussions - The SSP's "Standards of Professional Conduct for Settlement Planners" (SSP Standards) represents a significant accomplishment and valuable industry resource.  Professor Carl Pierce, who helped review and draft the SSP Standards, continued his analysis of related settlement planning issues as part of the Risk Settlement Planning Practicum. Karen Meyers, Director NSSTA's Certified Structured Settlement Consultant (CSSC) program, led a discussion about product suitability during the SSP Annual Meeting.

Unanswered Questions

Despite continuing educational progress, however, certain questions about the settlement planning market still need to be prioritized and addressed before settlement planning becomes a recognized business and profession. Among the most fundamental and important:

• What types of settlements comprise the settlement planning market?
• How large is the settlement planning market?
• Is the settlement planning market increasing or decreasing?
• What informational resources exist to help answer these questions?

Towers Watson Updates

Beginning with the last question, S2KM recommends the Towers Watson updates on "U.S. Tort Cost Trends" as a starting point for discussing the settlement planning market. Since 1985, Towers Watson (and its antecedent Towers Perrin) have published 15 such updates with the most recent 2011 update analyzing U.S. tort costs from 2010. Each study:

• 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;
• Excludes: 1) no-fault auto insurance; 2) property coverages; 3) workers compensation; 4) certain extraordinary (one time) costs - example: tobacco litigation.

Highlights from Towers Watson's "2011 Update on U.S. Tort Cost Trends"

• The tort costs in 2010 ($264.6 billion) were the highest in U.S. history and represent a 5.1% increase from $251.8 billion in 2009. Towers Watson estimates the 2010 U.S. tort system cost approximately $857 per person, versus $820 per person in 2009.
• Towers Watson attributes the increase to the April 2010 Deepwater Horizon drilling rig explosion and resulting oil spill in the Gulf of Mexico. Absent the costs from this event, Towers Watson estimates 2010 tort costs would have decreased 2.4% from 2009.
• Since 1984, tort costs as a ratio of U.S. Gross Domestic Product (GDP) have ranged from a low of 1.70% to a high of 2.30% with relatively rapid increases in the ratio during the mid-1980s and early 2000s offset by intermittent and multi-year declines in the ratio.
• Since 1950, even adjusting for inflation, increases in U.S. tort costs have far exceeded U.S. population growth. However, inflation-adjusted tort costs per capita were 16% lower in 2010 than in the peak year of 2004.
• The weak U.S. economy has had a notable impact on commercial auto insurance claims. 2010 tort costs were the lowest since 2000 and 19% lower than 2004.
• Although medical malpractice costs have increased at an average annual rate of 9.7%, versus 7.5% for all other tort costs, since 1975, growth in medical malpractice costs from 2005 to 2010 averaged only 0.3% per year.
• Looking ahead, Towers Watson:
  • Anticipates employee practices litigation to be significant in the future despite the U.S. Supreme Court's 2011 ruling in favor of Wal-Mart in the sexual discrimination and civil rights class action case Wal-Mart Stores Inc. v. Betty Dukes et al.
  • Identifies "fracking" (a natural gas drilling process that extracts natural gas from shale by using water and chemicals which could result in contaminated drinking water) as a new area of litigation where defense costs are beginning to mount.

Up until its 2002 update of "U.S. Tort Cost Trends", Towers Watson also translated annual tort costs into the following cost categories (with 2001 percentages): 1) administrative costs - 21%; 2) defense costs - 14%; 3) plaintiff attorneys -19%; 4) economic loss - 22%; and 5) non-economic loss - 24%.

Note: Towers Watson discontinued this latter portion of its analysis in 2002, according to Russ Sutter, a Tillinghast principal and actuary who directs the Towers Watson study, "primarily because we lack reliable information from plaintiff attorneys". These percentages therefore represent Towers Watson's "best estimate" in 2002.

S2KM assumptions: lacking alternative estimates of tort cost payment categories and percentages, Towers Watson's "best estimate" in 2002 for 2001 U.S. tort costs continues to represent the most reliable annual analysis of U.S. tort dollars paid to claimants and their attorneys.

Applying Towers Watson's percentages for 2001 to the results of Towers Watson's analysis of 2010 U.S. tort costs ($264.6 billion total), produces the following assumptive results: 1) administrative costs - $55.6 billion; 2) defense costs - $37.0 billion; 3) plaintiff attorneys - $50.3 billion; 4) economic loss - $58.2 billion; and 5) non-economic loss - $63.5 billion.

Utilizing both Towers Watson's 2011 update of its "U.S. Tort Cost Trends" plus S2KM's assumptions based upon Towers Watson's additional 2002 "best estimate" for 2001 produces the following assumptive results for 2010:

• Economic loss of $58.2 billion plus non-economic loss of $63.5 billion (both amounts presumably paid to claimants) equals $121.7 billion of tort-related dollars paid to claimants.
• $121.7 billion plus $50.3 billion paid to plaintiff attorneys equals $172 billion of tort-related dollars paid to plaintiffs and their attorneys.

S2KM will reference and utilize these 2010 annual assumptive "tort cost results" in subsequent blog posts while continuing to discuss the settlement planning market. For additional S2KM reporting about settlement planning, see the structured settlement wiki.