Understanding Structured Settlements

Structured settlements (“structures”) have long been an important tool in facilitating the resolution of claims and disputes. Using structures to bridge the gap between varying perceptions of a claim’s value and to respond to specific long-term claimant needs are just two ways that structures can provide assistance to parties in a disputed claim.

In 2014, the National Structured Settlements Trade Association (NSSTA) commissioned CLM Advisors to perform an industry study to quantify what claims professionals think about structures, how they are being used, and what might be improved about the process. This study was the second of two commissioned on this topic; the first examined what senior claims and litigation officers thought about the value of structures. In contrast, the 2014 study that will be discussed here gathered the opinions of frontline claims professionals.

More than 100 claims professionals participated in the study, representing 14 separate claims organizations. The participants represented a wide diversity of experience and lines of business. Eighty percent of the claims professionals involved in the study have been managing claims for more than 15 years. The participants also reported a wide range of claims handling experience, with almost all having experience with both auto and general liability claims. In addition, more than 40 percent reported having had experience handling professional liability claims.

Each claims professional answered a series of 45 questions, broadly grouped into four categories: demographics; perceptions; thoughts on value; and ideas for the future.

How Structures Are Used

More than half of the respondents (55 percent) said their current claims organization had a formalized structured settlement program, where claims staffs are mandated to work with previously vetted, previously identified structured settlement companies.

Interestingly, 14 percent of the participants said that they did not know if their company had such a program, even in organizations where other colleagues clearly identified such a program. This finding creates an opportunity for claims organizations that have such programs (and who wish to increase their use of them) to re-launch a program awareness campaign.

When it comes to organizing their structured settlement programs, the majority of claims organizations use a preferred versus exclusive model, employing more than one structured settlement company or consultant to assist them.

While one-third of claims organizations polled use only one approved vendor, most have more than one company on an approved list. Thirty percent use two-to-three vendors; five percent use four-to-five vendors, and a full 10 percent use six or more vendors.

Are Structures a Priority?

Claims handlers were asked to rank on a scale of one to 10 how important they believe it is to their claims organization that they use structures in all appropriate situations. While 14 percent believe strongly that using structures is very important to their companies (a 10 out of 10), the average response to this question was a six out of 10.

While more positive than neutral, this scoring suggests that for those claims executives who would like to see them utilized more frequently, more education around the benefits of structures would be productive. Such an approach ties to the findings of the Fall 2013 NSSTA study, in which 100 percent of the polled chief claims officers said that their organizations could be doing more to proactively use structures as part of a strategy to resolve claims more effectively.

The use of a structured settlement can be a relatively infrequent event for many claims professionals, even in organizations that use structures frequently. More than half (52 percent) reported that they make less than three referrals annually, and an additional 23 percent make less than eight (see chart one).

A small subsection of the polled professionals (four percent) make nine-to-15 referrals a year. A smaller subset makes more than 16 referrals a year.

The Process

In general, claims professionals seem to find it very easy to obtain structured settlement quotations. Asked to score how easy they find it to be, participants ranked this as an 8.2 out of 10 (10 being easiest). A full 42 percent ranked this as a 10 out of 10.

It is good that claims professionals perceive the process to be easy since they believe they are the most likely party to introduce the idea of a structured settlement on specific claims (see chart two).

The vast majority of respondents (62 percent) felt that they would be the most likely party to consider a structure, followed by counsel. Interestingly, these claims professionals felt that plaintiffs’ counsel is more likely to suggest a structure (11 percent) than defense counsel (nine percent).

Obviously, not all quotations result in the structure being utilized in the ultimate resolution of the file. When asked to estimate their success rates, claims professionals suggested that approximately 40 percent of the structures they have quoted are used.

While reactions to this success rate differed, on the whole this level of success is not an impediment to securing quotes in general. More than 50 percent said that they see value in getting the structured settlement quote, regardless of success rate. An additional third of the participants felt that the success rate they are achieving is in line with expectations. This underscores the importance of the quoting process itself, and the potential that the quote can be instrumental in moving negotiations or discussions to more fruitful levels.

Respondents also were asked to categorize how much extra work is required when it comes to obtaining a structured settlement quotation. The answers were positive.

Thirty-one percent said that getting a quote adds no real work for them. More than half (55 percent) said that a moderate amount of work is required, but it is worth it on the right case. Approximately four percent said that it’s too much work and they generally won’t get a quote unless they really have to.

High ease-of-use scores and success level satisfaction does not mean that claims professionals think the quotation process cannot be improved, though. In fact, study participants had a number of helpful suggestions that can serve as good topics for conversation for both the vendors that serve the industry and claims organizations.

For service providers, ideas included having online access to quotes; requiring less information before quotes; and including more generalized cost sheets and ranges. For claims organizations, suggestions ranged from better lists of approved vendors to more training.

Respondents also suggested that structures would be used more frequently if interest rates were higher, and if plaintiffs’ counsel were more receptive to structures generally—but all agreed that these two issues are not easily controlled.

Determining Value

A primary focus of the 2014 NSSTA study was to identify how valuable frontline claims professionals believe structures to be. A secondary focus was to identify areas of value that individual structured settlement consultants bring to the table.

As an interesting starting point, each participant was asked if they would use a structure if they were a plaintiff, claimant, or injured worker. A full 75 percent of these claims professionals said that they would, underscoring the value that they find intrinsic to structures.

The opportunity to achieve a settlement and successful resolution to a disputed claim is attractive to all claims professionals. The opportunity to do so quickly is even more attractive.

One quarter of the study’s participants said that they believe obtaining a structure quotation can help to speed the resolution of the claim, and almost 50 percent felt that structures make a case more likely to settle (see chart three).

Additionally, there seems to be general agreement that claims are more likely to settle when creative ideas are put on the table during the negotiation process. Structured settlement consultants, many of whom are deeply experienced in observing the negotiation process, have a wealth of experience and knowledge that can be helpful to that process.

For many claims professionals this experience and knowledge (separate from an ability to put together the quote) is very valuable. Respondents were asked to score the value of their consultants’ expertise on a scale of one to 10, with 10 meaning “very valuable.” A full 25 percent of claims professionals ranked the value of this experience as a 10 out of 10. Seventy-one percent ranked the value above a five. The experience and knowledge of structures consultants is highly valued.

When deciding which consultants to work with, claims professionals look for two primary attributes. First is the ability to explain and “sell” the structure and its benefits. Second is the ability to creatively meet the plaintiffs’ needs by building different structures to do that. In addition, claims professionals want their consultants to bring knowledge, expertise, and a neutral file evaluation to the process. Lastly, claims professionals believe that their consultants bring trust and credibility to the table during the negotiation process.

Based on the rankings given by study participants, industry’s consultants, on the whole, are doing a pretty good job of meeting these expectations. More than a quarter of respondents rated their loyalty to the consultants with which they work as 10 out of 10. More than 70 percent rated their loyalty with a score of greater than five out of 10.

The Future

A common theme voiced by these 100+ claims professionals is a desire for more education. Suggestions for this education included training about the benefits of structures generally, the use of structures in claims that involve Medicare Set-Asides, and negotiation strategies when using structures.

The desire for more education on the frontlines—and the willingness of industry vendors to provide it—creates an opportunity to further the benefits of structures in those claims organizations that understand the value of them. Given that each of the senior claims executives surveyed in NSSTA’s 2013 study felt that they could be doing more to drive the proactive use of structures, this educational focus would be exactly the right solution.