Beyond Structured Settlements

Structured Settlements in 2008 - 2

This S2KM blog post, the second of three analyzing structured settlements in 2008, summarizes conferences S2KM attended throughout the year. A prior post evaluated 2008 from an historical structured settlement perspective. A subsequent post will discuss challenges facing the structured settlement industry in 2009. Conferences and associations are listed alphabetically. For more detailed reports about these conferences, check the parenthetical links for related S2KM blog posts. For S2KM's complete historical review of professional associations and conferences, see S2KM's structured settlement wiki.

Academy of Special Needs Planners (ASNP) - The second annual ASNP conference underscored the strategic nexus that exists between special needs planning, settlement planning and structured settlements. ASNP's "extra-curricular" program featured a social service project where 30 ASNP conference attendees assisted Families Helping Families of Southeast Louisiana repair and improve its office headquarters. The ASNP conference confirmed for this author why special needs attorneys and financial planners, as opposed to former life insurance salesmen and claim managers, represent the future of structured settlements and settlement planning. Although several NSSTA and SSP members attended and/or participated as speakers, most of the structured settlement industry missed this valuable conference.

American Association for Persons with Disabilities (AAPD) - Structured settlement leaders from both NSSTA and SSP attended the 2008 AAPD Leadership Gala dinner in Washington, D.C. - in addition to many Congressional and Disability leaders. NSSTA was one of the event sponsors and had earlier featured Andrew J. Imparato, AAPD President and CEO, as a speaker at NSSTA's 2007 Fall Meeting. Imparato, a visionary and inspirational leader, is dedicated to transitioning disabled persons from poverty to economic self-sufficiency. AAPD's strategy includes uniting disabled persons as a political block and business market. AAPD's political priorities include changing the social security statutory definition of "disability" from "unable to work" to address "barriers to work" for disabled persons. Imparato's message for structured settlement professionals: involve yourselves at the local level with independent living centers.

National Academy of Elder Law Attorneys (NAELA) - NAELA's Mission is "is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of seniors and people with disabilities". NAELA's membership consists of 4400 attorneys in the United States, Canada, Australia and the United Kingdom. Most of the members of ASNP and the Special Needs Alliance (SNA) are members of NAELA including many NAELA founders and former Presidents and Directors. S2KM developed a "Web 2.0 for Lawyers" wiki for the NAELA 2008 Symposium which was also featured in a Legal Broadcast Network (LBN) podcast interview by Scott Drake with S2KM's Managing Director, Patrick Hindert. S2KM also published a 2008 blog post analyzing NAELA and NAELA's CELA certification program from a knowledge management and web 2.0 perspective.

National Alliance of Medicare Set-Aside Professionals (NAMSAP) - Founded in 2005, NAMSAP is a non-profit organization devoted to improving Medicare set-aside arrangements (MSAs) and to facilitating compliance with Medicare conditional payment recovery.

• Background - MSAs are administrative and funding mechanisms utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the Medicare Secondary Payer (MSP) statute. Although the MSP rules were enacted by Congress in 1980, CMS did not begin to enforce the MSP statute until 2001 based upon a series of CMS policy memoranda for workers compensation cases, several of which address structured settlement issues.
• MMSEA - On December 29, 2007, President George W. Bush signed into law the "Medicare, Medicaid and SCHIP Extension Act of 2007" (MMSEA). Beginning July 1, 2009, MMSEA requires liability insurers (including self-insurers, no-fault insurers and workers compensation insurers) to determine Medicare status for all claimants and report all claims involving a Medicare beneficiary to CMS when those claims are resolved. If the reporting for any claimant is not done in a timely manner, MMSEA authorizes CMS to enforce a civil penalty against liability insurers of $1000 per day per claimant. These information requirements and penalty provisions provide the basis for expanded enforcement by CMS of the MSP statute.
• MARC - One of the featured presenters at the NAMSAP 2008 Annual meeting was Roy Franco, Director of Safeway's Risk Management Strategies and Chairman of the Medicare Advocacy Recovery Coalition (MARC).
  • In discussing the MMSEA requirements for liability cases, Franco said "the issue is not just about reporting" and predicted a "claim freeze" as liability insurers and self-insureds wait for resolution and approval before they pay claims.
  • Franco characterized the MMSEA MSP rules as an attack on traditional best practices for liability claim management. He predicted legal challenges and criticized MMSEA rules.
  • Franco outlined MARC's priorities for MMSEA which include changing the law or, alternatively, obtaining an injunction to stop its July 1, 2009 implementation.
• S2KM reporting - S2KM published seven blog posts in 2008 highlighting recent MSA and MMSEA developments that impact structured settlements including several developments that have occured during 2008.
• S2P2J analysis - S2P2J Release 44 features an extensive update of MSA rules for structured settlements as well as a summary of MMSEA.

National Association of Settlement Purchasers (NASP) - At the NASP 2008 Annual Meeting, Patrick Hindert, S2KM's blog author, moderated a panel discussion titled "How to Improve and Grow the Structured Settlement Market". Participants included: Jack Meligan, Michael Upchurch and Matthew Bracy. As settlement planners, both Meligan and Upchurch described their view of the secondary market as a "mixed-bag" of bad and good. The "bad" part of factoring results from non-professional ("cash now") advertisements promoted by many factoring companies.

Not only do plaintiff attorneys dislike "cash now" advertisements, according to Meligan and Upchurch, they are also less likely to recommend structured settlements if they believe their clients will eventually sell their payment rights.

The potential liquidity provided by settlement transfers improves the structured settlement annuity product. Lives change. Unexpected events occur. Even the best personal injury settlement plans need to be reviewed post-settlement and sometimes adjusted. Settlement transfers, which must be reviewed and approved by state judges, are appropriate in some cases.

Bracy emphasized the need for well-educated plaintiffs and plaintiff attorneys - as well as judges. He noted that many primary market participants have ignored the settlement transfer business. Bracy acknowledged that good and bad business practices exist in the secondary market as well as the primary market. According to Bracy, the potential secondary structured settlement represents between 5% and 7% of the total primary market. Most structured settlement cases, according to Bracy, neither require nor qualify for a settlement transfer.

National Settlement Consultants (NSC) - Patrick Hindert, S2KM's Managing Director and blog author, was privileged to speak at the NSC 2008 Annual Meeting and also to attend NSC presentations and social functions. In addition to Michael and William Goodman, NSC founders and principals, the NSC presenters included representatives from ten (10) structured settlement annuity providers as well as several national settlement planning experts. In retrospect, the "not-for-publication" May 2008 NSC presentations by some of the annuity providers now seem especially interesting and important. Among other topics, these presentations addressed investment exposure to real estate mortgages plus one annuity provider's study of settlement transfers by its own structured settlement recipients. Randy Snow's NSC keynote presentation about change and growth was humorous and thought-provoking. Randy subsequently participated in a series of S2KM blog interviews about change and growth in the structured settlement industry. Hindert provided a structured settlement Medicaid update as part of the NSC educational program.

National Structured Settlement Trade Association (NSSTA) - Founded in 1985, NSSTA is the oldest and largest structured settlement professional trade association. NSSTA's members are primarily structured settlement consultants and annuity providers. In addition to providing education and certification, NSSTA historically has served as the legislative and lobbying voice of the primary structured settlement market. NSSTA's committees, especially NSSTA's legal committee, are among the most valuable sources of information about the structured settlement industry.

• Winter Meeting - Prominent educational themes and presentations at the NSSTA 2008 Winter Meeting included: trial attorneys; disabled persons and disability associations; government benefits; structured settlement legal documentation; legislative and regulatory developments; Internet marketing; and professionalism.
• Annual Meeting - Chris Diamantis, NSSTA's 2008 President, introduced Joseph Ricci as NSSTA's new Executive Director, and identified NSSTA's strategic priorities for 2008: factoring; advocacy and marketing; professionalism; and governance and communication. J.P. Steele announced the results of a Structured Settlement Survey Report sponsored by AIG which S2KM summarized in a November 23, 2008 blog post. Eric Vaughn, NSSTA's lobbyist, provided a "Washington Report" analyzing the then-upcoming federal election from a structured settlement perspective. Legal committee co-chairman, Michael Miller, summarized results from 100 factoring cases in which his law firm, Drinker Biddle, had participated since January 2008. Craig Ulman, NSSTA's General Legal Counsel, provided a State Guarantee Funds primer. Bradley Frigon spoke about special needs trusts. Among other topics, two actuarial presentations discussed structured settlement pricing.
• Fall Meeting - Although S2KM participated in four committee meetings at NSSTA's 2008 Fall Meeting, S2KM did not attend NSSTA's educational program because of a scheduling conflict. S2KM's blog coverage of this meeting therefore was limited to editorial commentary.

Society of Settlement Planners (SSP) - Founded in 2001, SSP is a national nonprofit educational and public policy association of professional structured settlement producers and others who assist injured claimants in the settlement process. At its 2008 Annual meeting, the SSP adopted its "Standards of Professional Conduct for Settlement Planners", a multi-year SSP project initiated and managed by SSP Director and attorney Richard Risk.

Carl A. Pierce, distinguished professor of law at the University of Tennessee, assisted SSP with this ethics project. Pierce served as a reporter for the latest revision of the American Bar Association's Model Rules of Professional Conduct.

Frank Johns, a leading special needs attorney and settlement planning ethicist, also advised SSP on its Standards of Professional Conduct. Johns' 2008 SSP presentation introduced a proposed Request for Proposal (RFP) for settlement planners.

Risk organized and moderated SSP's tax panel that featured Jody Brewster, Glenn Mackies and Michael Montemurro.

SSP devoted three presentations to government benefits, the highlight being David Lillesand, a national leader among social security and special needs trust attorneys. Based upon his discussions with the Social Security Administration (SSA), Lillesand stated that Nancy Veillon's January 31, 2006 letters to attorneys Roger Bernstein and Jay Sangerman representing NSSTA are "inoperative" - a statement Lillesand repeated during his presentation with SSA executive attorney Ken Brown at the ASNP 2008 Annual Meeting.

SSP's panel discussion about the secondary markets included NASP Executive Earl Nesbitt, Stephen Harris and Rhonda Bentzen. Other SSP educational presentations included a legislation and litigation update, settlement planning case studies, and advice about Internet marketing.

Stetson Special Needs Trust X (SSNTX) - Throughout its 10 year history, the Stetson Conference has been recognized as the leading special needs trust (SNT) knowledge forum in the United States. Most of the speakers are members of either the Academy of Special Needs Planners (ASNP) or the Special Needs Alliance (SNA). For structured settlement professionals, the 2008 Stetson program titled "The Basics of Special Needs Trusts" offered analyses of several important settlement planning topics and included two presentations specifically focusing on structured settlements:

• Texas Attorney Pi-Yi Mayo spoke about the January 31, 2006 Social Security Administration (SSA) letters to attorneys Roger Bernstein and Jay Sangerman as well as the application of the Deficit Reduction Act of 2005 (DRA) to structured settlements used to fund special needs trusts; and
• Leo Govoni provided "An Economic Analysis of Structured Settlements".

Structured Settlement Knowledge Leadership Conference (SSKLC) - Focusing on the "needs and best interests of consumers", the first Structured Settlement Thought Leadership Conference, sponsored by J.G. Wentworth, was designed to bring together knowledge leaders who are "redefining structured settlement roles and processes". The Leadership Conference objective was to provide an educational platform and open forum dedicated to growing and improving the structured settlement market. In addition to four panel discussions and two individual presentations, the Leadership Conference featured a brainstorming session to improve the structured settlement process for plaintiffs based upon the subjects discussed in prior sessions. The panel discussions addressed the economic life cycle of a personal injury claim identified by Adam Scales in his 2002 Wisconsin Law Review article titled "Against Settlement Factoring? The Market in Tort Claims has Arrived". One result of the Leadership Conference was the subsequent 2008 structured settlement survey conducted by J.G. Wentworth.

J.G. Wentworth Survey - 4

Three prior S2KM blog posts:

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

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

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

JGW Primary Market Survey Questions

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

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

Responses:

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

S2KM comments:

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

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

Responses:

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

S2KM comments:

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

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

Responses:

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

S2KM comments:

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

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

Responses:

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

S2KM comments:

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

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

Responses:

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

S2KM comments:

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

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

National Settlement Consultants

National Settlement Consultants (NSC) hosted its second Annual Meeting at the Bedford Springs Resort May 1-3, 2008. The NSC meeting demonstrated why many industry experts view Michael and William Goodman, NSC founders and principals, as structured settlement leaders and visionaries.

In addition to Michael and William Goodman, the NSC presenters included representatives from ten (10) structured settlement annuity providers as well as several national settlement planning experts. Patrick Hindert, S2KM's Managing Director and blog author, was privileged to speak at the NSC meeting and also to attend NSC presentations and social functions.

Highlights from the NSC Annual Meeting

• Randy Snow - Randy Snow delivered a powerful, humorous, thought-provoking keynote address. Snow's message to NSC and the structured settlement industry - successful change requires:
  
  • Attitude;
  • Accountability; and
  • Action.
  • No excuses.
• John Heavenrich - NSC honored John Heavenrich as he retires from the structured settlement industry. Heavenrich was one of the founders of the structured settlement industry. He is revered by many peers as one of the most intelligent and honorable persons ever to work in the structured settlement industry. Heavenrich and Frank McKellar of Canada formed one of the earliest, most successful and longest-lasting international structured settlement partnerships. After serving his country in the U.S. Army, Heavenrich devoted his professional career to helping disadvantaged persons. With an MBA from Dartmouth and a law degree from Michigan, Heavenrich began his professional career providing legal aid to the poor. More recently, he helped build homes in New Orleans for families displaced by Hurricane Katrina. Heavenrich will be remembered within the structured settlement industry for his international vision, ethical leadership and focus on helping personal injury victims and other disadvantaged persons. Heavenrich is one of most interesting and inspiring professionals ever to work in the structured settlement industry.
• Annuity providers - Ten structured settlement annuity providers (and one property and casualty company) participated in the NSC Annual Meeting. The annuity provider participants included current and future structured settlement industry leaders. Both their presentations and informal conversations confirmed that current structured settlement annuity providers are committed to growing the industry. They want to partner with the best and the brightest consultants and lawyers to create innovative financial and insurance solutions for personal injury victims, their families, and their attorneys.
• Industry experts - This author appreciates participating among industry experts who spoke at the NSC Annual Meeting. NSC's program was well-organized to focus industry experts and leaders on structured settlement industry issues, problems, priorities and solutions. The resulting NSC "conversation" was reminescent of the structured settlement meeting sponsored by First Colony Life Insurance Company in October 1982 at the Homestead Resort in Virginia. The 1982 First Colony Meeting, which this author attended, provided the political focus and industry cooperation necessary to develop IRC Section 130 Qualified Assignments and to create the National Structured Settlement Trade Association (NSSTA). Instead of one annuity provider and many consultants, the NSC meeting featured one consultant company, ten annuity providers and several issue experts.

Structured Settlement Medicaid Update - a summary of the author's presentation at NSC's Annual Meeting:

• Acknowledgement - Hindert's presentation at NSC's Annual Meeting summarized recent presentations by David Lillesand, a leading social security and special needs attorney, at these conferences:
  • 2008 SSP Annual Meeting
  • 2008 ASNP Annual Meeting
• Context - according to industry leaders, structured settlements represents a "transitional industry".
  
  • See: "2008 NSSTA Annual Meeting"
  • Here is S2KM's 2006 analysis for the "Future of Structured Settlements"
• Industry Changes - When analyzing Medicaid from a structured settlement perspective, several other industry changes (structured settlement tsunamis) need to be considered:
  • Aging industry ownership - including current industry knowledge of and perspective about Medicaid;
  • Shifting control - defendant (claim management) to plaintiff (settlement planning)
  • Secondary markets - the impact of the secondary annuity markets on Medicaid
  • Competitive products - including proposals for disability savings accounts;
  • Internet transition - check current online pay-for-click prices for "structured settlement" as well as "Web 2.0 for Lawyers".
  • Other government benefits - proposed structured settlement solutions for Medicaid also need to consider structured settlement rules for Medicare, Section 8 Housing, Veterans' benefits and taxation.
• Market Analysis
  
  • What size are the current Medicaid (and Medicare) annuity markets?
  • How many structured settlement annuities were purchased in 2007 to fund special needs trusts?
  • What is the potential market for Medicaid annuities?
  • Within the structured settlement industry, who is analyzing the annuity market linked to government benefits?
  • Why hasn't NSSTA highlighted "government benefits" as a strategic priority for growing the structured settlement industry?
• Medicaid Analysis - Hindert's NSC Medicaid presentation summarized:
  • David Lillesand presentations at the
    
    • 2008 SSP Annual Meeting
    • 2008 ASNP Annual Meeting
  • History of Medicaid - from a structured settlement perspective;
  • Special Needs Trust legal authority - highlighting why SSA officials have declared the 2006 "Bernstein Letter" to be "Inoperative";
  • Special Needs Trust OBRA 93 requirements - highlighting potential conflicts with existing structured settlement tax rules;
  • Deficit Reduction Act (DRA) annuity rules - a "Pandora's box" for the structured settlement industry;
  • S2KM's proposed solution - how to grow the structured settlement industry by integrating structured settlements and Medicaid;
  • Additional resources - links to leading authorities for structured settlements and Medicaid.

Congratulations to Michael and William Goodman, as well as NSC and NSC's associates and partners, for your outstanding 2008 Annual meeting. Thank you for inviting this author to participate. The structured settlement industry needs enlightened and growth-oriented new leaders like you.