Premium Success in 2022
Propelled by record fourth quarter production exceeding $2 billion of annuity premium, which surprised many industry participants including this writer, 2022 structured settlement annuity production currently is estimated to have exceeded $6 billion.
Congratulations to structured settlement professionals, annuity providers and other industry stakeholders who contributed to this success!
As an industry, however, we should now be asking if this past year’s success represents the beginning of a sustained growth trend or merely the latest random spike in our industry’s longer term static performance. Regardless of the answer, what strategy or strategies will accomplish future sustained growth?
Static Growth and Failed Growth Strategies
Based on our own primary metric, structured settlement industry production has not increased since 2001 when annual annuity premium first reached $6 billion. Between 2001 and 2022, the industry achieved $6 billion of annual annuity premium 10 times but has never reached $6.5 billion.
During that same time period (2001-2022), the structured settlement industry has failed to reach $6 billion of annual annuity premium 12 times including four (4) years (2011, 2012, 2020, 2021) when annuity premium was less than $5 billion.
Previous industry “Growth Initiatives” and “Innovation Committees” failed to generate sustained structured settlement annuity growth. To date, identifying and implementing strategies for sustained growth continue to challenge our industry leaders.
What needs to change in order to modernize structured settlement strategy and regenerate structured settlement growth?
Change and Mental Mindsets
Two axioms addressing “change” seem especially relevant to the current structured settlement industry.
In his book “The 21 Irrefutable Laws of Leadership,” John C. Maxwell wrote: “Change is inevitable. Growth is optional.” Author Aldous Huxley has been quoted as saying: “the only thing one can be sure of changing is oneself.”
The world in which our structured settlement industry operates has changed dramatically since 2001. Has change itself impaired structured settlement growth or has the lack of growth resulted from our own ineffective response to those changes?
This article maintains a critical factor preventing structured settlement growth has been, and continues to be, our collective industry mindset, which may have been accurate and useful in 2001, but arguably has become increasingly inaccurate and detrimental to future growth.
A fundamental requirement for establishing sustained structured settlement growth, therefore, must be for the structured settlement industry to change our collective mindsets as applied to our own business.
Some readers might consider this proposition nonsensical or impossible to accomplish or both. The change this article proposes, however, arguably is necessary following 21 years without growth. This change also is within our industry’s individual and collective self-control.
To simplify the proposed change, this article uses a metaphorical “soldiers” vs. “scouts” comparison introduced in a prior Independent Life article and discussed further in the Conclusion to Independent Life’s “2022 Structured Settlement Year in Review”.
To summarize: unlike soldiers, who defend their beliefs against perceived threats, with a scout mindset, there is no such thing as a “threat” to existing beliefs. This means an individual or group is always open to changing their mind in response to new information or new ideas.
What follows are proposed applications for a proposed new “scout” structured settlement mindset. Anticipating many readers may react, at least initially, with a “soldier” mindset, to these recommendations, remember: “change is inevitable and growth is optional. The only thing you can be sure of changing is yourself.”
A structured settlement growth strategy should begin by acknowledging the existing legislative strategy to control factoring abuses, as currently enacted, is commendable – but has not been successful. Likewise, supplemental judicial education will not solve factoring abuse – a problem that harms primary market growth because: 1) many personal injury stakeholders consider factoring as a negative structured settlement feature and 2) efforts to address factoring abuses continue to distract and dissipate primary market resources.
Admitting these facts, to allow discussion and evaluation of alternative anti-factoring strategies, requires a new industry mindset. Alternative solutions have been proposed and should be discussed and thoughtfully considered by members of the National Structured Settlement Trade Association (NSSTA), American Association of Settlement Consultants (AASC) and the Society of Settlement Planners (SSP).
Claimant’s Best Interest
Structured settlements are intended to protect personal injury claimants who can and should be advised by their own representatives. If, as an industry, we believe structured settlements generally are in the “best interest” of injured individuals, we should establish industry “best practices” to prioritize “best interest” settlement standards for personal injury claimants.
Such “best practices,” and the mindset to establish such best practices, do not currently exist within the structured settlement industry. For some industry participants, the existing mindset remains paternalistic. For others, the existing mindset is simply outdated as, for example, the SSP “suitability” Practice Standard for product and service recommendations.
The lack of such industry-wide “best practices” limits structured settlement growth because business practices not aligned with an injured person’s “best interests” create potential: 1) conflicts of interest for structured settlement professionals and product providers; and 2) competitive disadvantages compared with non-structured settlement product providers and their distributors.
Consider these examples:
- NAIC Model Regulations – The National Association of Insurance Commissioners (NAIC) has adopted a “Suitability in Annuity Transactions Model Regulation” (requiring annuity producers to act in the best interest of the consumer when making an annuity recommendation) and an “Annuity Disclosure Model Regulation” (to provide standards for the disclosure about annuity contracts to protect consumers and foster consumer education) both of which have been enacted by multiple states. Each Model Regulation exempts structured settlement annuities except for one education requirement. Life companies and agents selling non-structured settlement annuities must satisfy these NAIC requirements wherever enacted. Advisors selling financial securities as part of a settlement plan must satisfy the SEC’s “best interest” requirement. Nothing prevents the structured settlement industry from voluntarily adopting and promoting provisions from these NAIC Model Regulations as industry “best practices” except our current paternalistic and/or outdated mindsets.
- Life Company Approved Lists – Advocates for “approved life company lists” justify these lists as necessary “to protect the liability insurers against the costs of defending potential future lawsuits by claimants who make bad product decisions.” Critics argue “approved life company lists”: 1) are unnecessary to protect defendants and their insurers; 2) are unethical; 3) violate structured settlement public policy; and 4) controvert a prospective structured settlement recipient’s “best interest.” It will take a new industry mindset for all parties to recognize “approved life company lists” restrict not only the structured settlement market but also the growth of the structured settlement market and to agree to end this outdated industry practice.
Structured Settlement Products
Peter Drucker, celebrated as “the man who invented management,” has been quoted as saying “you can’t improve what you don’t measure.” To improve (grow) structured settlements, the industry must first define “what is a structured settlement product?” And, assuming there is more than one type of structured settlement product, each product should be separately measured and reported.
To this writer’s knowledge, none of NSSTA, AASC or SSP has specifically asked, or attempted to define: “what is a structured settlement product?” To date, for the traditional “single product” structured settlement mindset, this question apparently has been redundant, or too political or too complicated to address.
Why is this question, and a related change in the industry’s “single product” mindset, important for future structured settlement growth?
First, assuming the industry wants to grow structured settlements, the issues of definition, classification and measurement are fundamental. What products should be considered “structured settlement products?” Fixed annuities? Indexed annuities? Variable annuities? Market-based programs? SPIAs? What are the definitional criteria and justification assuming one goal of the exercise is to measure structured settlement growth?
Second, assuming the product definition encompasses more than one product, production reports should delineate sales levels for each product category. For example, current industry production reports do not compare fixed indexed annuities with fixed annuity performance despite significant product differences. Failure to separately report each product prevents analysis of current demand for fixed index annuities as well as analysis of fixed indexed annuities’ potential for generating future industry growth.
Structured Settlement Market
“What business are you in?” is a challenging question if you think of “structured settlements” as a business or even as a market.
Although counterintuitive, to increase production of structured settlement annuity products, our industry must change its mindset to stop thinking strategically in terms of a “structured settlement annuity market.”
What once may have existed as the “structured settlement market” (defined by a single product with a specific funding method, limited tax provisions, defense-dominated business models and a simple, binary “cash or structure” settlement proposition) disappeared years ago.
Attempting to market the “traditional” structured settlement product with a mindset that no longer matches today’s markets helps to explain why structured settlement professionals have been unable to achieve sustained growth for structured settlement annuity products.
Today, whether we recognize or acknowledge the fact, structured settlement professionals have become settlement planners (that is our business) who market and sell structured settlement annuities, and most often other products, plus related services. Our primary market is the personal injury settlement planning market.
Any of us maintaining a “soldier mindset,” who fails to acknowledge, study and commit to the personal injury settlement planning market, will increasingly struggle to innovate, sell and compete in what is now the primary market for structured settlement annuity products. Until we change our mindset to match our primary market, sustained structured settlement growth cannot occur.
A distinct, growing market for structured settlement annuities is the workers compensation market dominated by Medicare Set-Asides (MSAs). Our industry’s current MSA mindset arguably is short-term and short-sighted: maximize the inherent, possibly unintentional, WCMSA cost advantage for as long as possible.
A more strategic mindset would acknowledge: 1) no written authority exists for the WCMSA structured settlement cost advantage and could end at any time; 2) preserving this cost advantage and extending it to liability MSAs represents an industry imperative; 3) longer term structured settlement growth justifies and requires a more comprehensive Structured Settlement Social Security Strategy that encompasses Medicaid and ABLE as well as Medicare.
Other distinct markets for structured settlement annuities exist. Collectively referred to as the “Non-Qualified Markets,” these markets are rarely differentiated and each individual market’s potential remains largely undetermined and unexplored. A new industry mindset will be required to selectively develop and grow any of these distinct markets.
Nothing guarantees future structure settlement growth. In fact, considering our industry’s past 21-year performance and the lack of any credible growth strategy, no one should anticipate sustained future industry growth without some fundamental change.
This article maintains the first change necessary for growth must be our industry’s collective mindset – in order to “see things as they are” by willingly seeking evidence that provides a more accurate map of current structured settlement reality. With that mindset, there would no such thing as a “threat” to beliefs. To grow, our industry must always be open to changing our minds in response to new information or new ideas.