Cost/Time Savings, Complexity and Risk for the Casualty Insurer in dealing with the Structured Settlement Industry

The traditional justifications for casualty insurers to promote structured settlements have included saving claim costs and claim time.  These traditional justifications are counter intuitive and unsubstantiated.  The structured settlement industry, even with the Tax Relief Act of 2001 still struggles with meaningful and articulated standards, metrics and best practices over all.

1. Cost Savings – Structured settlements typically are negotiated on a cash basis.  Few plaintiff attorneys permit their clients to accept a structured settlement costing less than the cash alternative.  Plaintiff attorneys increasingly are assisted by their own structured settlement consultants who have access to annuity rates.  Annuity costs are discussed openly in most structured settlement negotiations.  Justifications for cost savings frequently point to settlement costs that are less than preliminary reserve estimates.  It is questionable whether such “savings” are attributable to the structured settlement or to good claim practices.
2. Time Savings – Many structured settlement participants don’t track their time.  Structured settlements involve additional information, documentation and work processes not required in a lump sum settlement.  The time inefficient process of completing structured settlement closing documentation creates a bottleneck for the entire claim management process.
3. Balanced with these “benefits”, are the complexity and risks of structured settlements that do not occur with lump sum settlements.  Unanticipated liabilities and inefficient work processes result when defendants and casualty insurers fail to understand and properly manage the complexities and risks of their structured settlements.
4. Defendants, including casualty insurers, purchase 100 percent of all structured settlement funding products.  They incur extra costs for structured settlements that increase general claim costs.  When issues occur following settlement, including factoring transactions or insolvencies, they are at risk for additional costs.  Beyond their concern for claimants’ welfare what favor or advantage granted in return do defendants and casualty insurers receive for promoting and agreeing to structured settlements?