Introduction
The American Association of Settlement Consultants (AASC) invited Patrick Hindert to speak on behalf of Independent Life during AASC’s Annual Conference held March 20-21 in Dallas. This article summarizes his comments.
Good morning. Eric SoHayda and I are honored to represent Independent Life Insurance Company at this year’s AASC’s Annual Conference. Independent Life has been a major sponsor of each AASC Annual Conference since the association was founded in 2021. Thank you for this opportunity to update you on our company.
Similar Origins Facing Industry Skeptics
AASC and Independent Life share somewhat similar origin stories.
When AASC was founded in 2021 many industry participants questioned whether and why a third settlement planning association was needed.
Similarly, when Independent Life was founded in 2018, many industry participants questioned why another annuity provider (especially a de novo annuity provider) was needed – and whether and how Independent Life could survive competing against eight titans of the U.S. insurance industry.
Even today, there are skeptics who ask what has AASC and/or Independent Life really accomplished and does our industry really need us?
AASC’s Accomplishments
One way to evaluate what AASC has already accomplished is to consider how the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have improved since AASC was founded – arguably, at least in part, in response to AASC.
To cite three examples for NSSTA, from which AASC originally separated, NSSTA’s Women’s Caucus, NSSTA’s revised CSSC / MSSC program and NSSTA’s rejuvenated Structures 101/202 program not only have improved NSSTA, they also have strengthened structured settlements and settlement planning.
Since it was founded in 2000, SSP has been recognized for its outstanding educational programs. SSP’s recent 2024 Annual Conference raised their previous high standard and also introduced “financial transition planning” thereby offering a new, or at least more clearly defined, humanistic perspective to settlement planning.
In addition to how AASC has challenged and improved NSSTA and SSP, AASC’s legislative initiative to qualify “sexual abuse” cases for tax exclusion under IRC 104(a)(2) represents a positive and noteworthy industry contribution. So yes, AASC has made a difference – a positive difference.
Independent Life’s Accomplishments
Focusing on Independent Life, how has our company not only survived since 2018, but also, thanks to our agents, sold more than $1 billion of annuity premium?
And why, despite arguments from some defense brokers that Independent Life structured settlements do not represent the “best interest” of plaintiffs, have 688 judges in 41 states approved structured settlements funded with Independent Life annuities applying a “best interest” standard – without one single denial?
And why, despite statements from some defense brokers that self-insured defendants and liability insurers won’t accept Independent Life, have more than 500 self-insured defendants and liability insurers assigned cases to Independent Life?
Here are some of the reasons:
First, our timing was propitious. In 2018, when Independent Life was founded, the structured settlement market was stagnant, complacent and unprepared for the Covid years of 2020 and 2021. Since annual structured settlement annuity premium first reached $6 billion in 2001, our industry only exceeded that figure once prior to 2022. From 2009 to 2017, structured settlement annual annuity premium never even reached $6 billion.
As of 2018, when Independent Life entered the market, structured settlement innovation was almost non-existent:
- “Quote-in-the-Box” had been the industry quoting “standard” for decades.
- Every annuity provider paid a “standard” 4% commission.
- “Traditional” fixed annuities dominated the market.
- Not a single annuity provider proactively marketed Qualified Settlement Funds (QSFs ) which had been in existence with Treasury approval and guidance for structured settlements since 1993.
- Most of the existing eight annuity providers simply acquiesced when a structured settlement transfer petition was filed.
Second, just as David held advantages when he faced Goliath, Independent Life has had advantages compared with larger, more established structured settlement annuity providers.
- Unlike our competitors, Independent Life has focused our entire company (not just one department) on structured settlements.
- Without our competitors’ legacy investments and national advertising overhead, we began with, and have maintained, an overall pricing advantage.
- Compared with any of our competitors, our management and employees have equally impressive credentials and extensive experience in structured settlements, insurance, law and finance.
- Our talent, dedication and initial momentum have attracted an impressive roster of partners who have accelerated the growth of our balance sheet and strengthen the guarantees we make:
- Capital: LKCM Headwater and KKR’s Kilter Finance
- Reinsurance: Hannover Re U.S. (A.M. Best A+ rated)
- Investment Management (BlackRock)
- iStructure Index Management: Franklin Templeton and Bank of America
- As a result, even as a de novo company, Independent Life has consistently earned high marks from rating agencies designated and approved by the Securities and Exchange Commission:
- Egan-Jones: A
- KBRA: A-
- Our risk-based capital (RBC) ratios compare favorably with our structured settlement peers.
Third, Independent Life is conservatively managed in all regards, most importantly in terms of our investment strategy, capitalization, product design and pricing, and risk management.
However, we also recognized from our beginning that innovation, a critical success factor, had been missing from the structured settlement market.
Consequently, we entered the structured settlement market, and have continued to maintain, an innovative mindset. Our innovative mindset has become a critical factor that distinguishes Independent Life from other structured settlement annuity providers.
Here is what Peter Drucker, the late management guru, said about the importance of innovation: “Every institution…must build into its day-to-day management four entrepreneurial activities that run in parallel: (emphasis added)
- organized abandonment of products, services, processes, markets…that are no longer an optimal allocation of resources;
- systematic, continuing improvement;
- systematic and continuous exploitation…of its successes;
- systematic innovation, that is, create the different tomorrow that makes obsolete and, to a large extent, replaces even the most successful products of today.”
And here some of the ways Independent Life has already applied Peter Drucker’s innovation principles:
- Duration-based Compensation. We recognized the industry “standard” 4% commission made short duration structured settlements virtually unsaleable in low interest rate environments and failed to properly reward agents for selling longer term structured settlements. As a result, we are the only structured settlement annuity provider to offer agents duration-based compensation.
- iStructure. We took notice of a competitor offering an indexed structured settlement annuity, realized it was a good product, and then built an even better indexed-linked structured settlement annuity – in partnership with Franklin Templeton and Bank of America.
- Mosaic. Recognizing the need for a better quoting system than existed in the market, we have designed and built a beginning-to-end administrative system that integrates quoting, documentation and reporting for our agents as well as Independent Life.
- Payee Protection Policy. While most other annuity providers have reacted passively, as “interested parties,” to factoring transfer petitions involving their payees, Independent Life was the first annuity provider to publish and enforce a Payee Protection Policy providing unique security protections for our payees.
- iStructure applications – The success of our iStructure product in the personal injury market has led our agents to introduce and expand the application of iStructure to new non-qualified markets including structured attorney fees, mass torts, structured installment sales, employment and divorce cases.
- Artificial Intelligence (AI) – Independent Life has been, and will continue to be, a leader in helping educate our industry about AI as well as utilizing AI to improve our products and services for the benefit of our agents and their customers.
The results of our innovations have already generated, and will continue to produce, increasing benefits for Independent Life, our agents and their customers. During 2023, Independent Life:
- Achieved statutory profitability while increasing total consideration on issued contracts by 43% to $288 million.
- Continued optimization of the risk-adjusted return profile of our growing invested asset portfolio (total cash and invested assets increased from $672 million in 2022 to $950 million in 2023).
- Continued successful execution on all of our strategic initiatives, including but not limited to merging ILIC & Sterling and continuing to enhance our technology through the development of Mosaic.
- Developed plans to increase capital and reduce our leverage ratio.
- Made significant progress in developing an entirely new product.
- Accomplished all of the above with a small but dedicated and talented team.
Conclusion
As Peter Drucker indicates, “every institution” must innovate to survive and maintain success. Arguably, “institution” includes professional associations as well as companies. To date, AASC has had a positive impact on the structured settlement and settlement planning industries pushing NSSTA and SSP to become better associations. Going forward, AASC, as well as NSSTA and SSP, must each innovate and evolve with settlement planning to justify the roles they currently play in the market and continue to provide meaningful benefits for their members.
