As we sit here less then two weeks after the stock market collapse, which was brought on by the real estate collapse and foreclosure crisis in the US, I am shocked at the timidity and fear of structured settlement brokers, professionals and life markets. It has been a period of intense trauma for individual investors, attorneys, settlement claimants and others pondering what to do with their existing funds, as well as prospective funds they are receiving in a settlement. My phone calls and emails to others in my industry indicate that most brokers and life companies are sitting in their offices and are hunkered down playing defense and begging the life markets to give them evidence that all is well and that they will survive intact. Meanwhile, the two respective settlement trade associations, NSSTA and SSP are reduced to periodic emails to membership that talk about monitoring the situation and doing out reach to our capital hill allies and other lobby groups. I hear fears of what will become of the NSSTA budget if American General and AIG leave the settlement market so caution is the word of the day. I hear from agents and brokers that they are having the worst years of their careers, with settlements down, tort reform reducing litigation awards and the cost of business rising dramatically. Once again members of our profession are walking around in fear and and looking for some answers to what really boils down to two basic questions:
1. Are structured settlements and annuities safe in the current market turmoil?
2. What do we tell trial lawyers and claimants to assure them our product is still viable?
Well, as a guy with almost 30 years of experience in settlement markets in particular and life insurance companies in general, I am here to pronounce something that the trade assocations won't, and the life insurance companies don't dare, and that is not only are things going to be ok, I am here to tell you things are going to be GREAT in the structured settlement profession over the next 5 years.
Much as I begged trial lawyers and settlement claimants to stop pouring money into real estate deals over three years ago here on my blog, basically calling the top of the real estate market, and later begged clients to start selling against equity yeilds on a historic basis earlier this year, I am now calling the bottom of the structured settlement market and the start of what is going to be the best decade in our profession since the early 1980s.
Let me tell you why we are about to enter the golden age of structured settlements:
1. When the smoke clears and the irrational panic of the last month finally ends, people are going to look up and realize that the life insurance industry, particularly the big 10 companies, not only weathered the storm in amazing fashion, but in comparison to devastated stock portfolio's, 1% yield on savings accounts and foreclosed real estate, structures offered the single best return on the settlement dollar for hundreds of thousands of claimants who had the wisdom to take a structured settlement over the last 10 years. Not only are structured settlements safe, not only are the life markets strong and sound, but the tax free net yield on structures absolutely blows away the returns on real estate and stocks over the last 10 years. Not only was the structured settlement the SAFE decision, it was clearly the SMART investment decision as well. In short, when compared to alternative investment options at settlement, the structured settlement annuity was and will continue to be the single best choice for 90% of all claimants who are given the option to look at a structured settlement.
2. The massive bail out and unprecedented move into the banking and financial system by the Federal government has started in motion what will soon be the single most profound devaluation of the U.S. dollar in the last 50 years. Lets face facts, we are in a recession, people are buried in debt, the foreclosure crisis has two more years to go to get this over hang eliminated and it is going to take massive government spending to keep things propped up. The government, wisely in my opinion, chose significant monetary inflation over a massive depression and the collapse of the world financial system, but it wasn't exactly a great choice they were faced with. I won't go into basic monetary economics, but go read a newsletter from Bill Gross at PIMCO if you want to understand the details. Essentially we are going to see dramatically increasing interest rates over the next 3 to 5 years as we need, as a nation, to pump up returns on US financial instruments in order to entice the foreign interests who buy and own most of our private and governmental debt. In simple terms we are going to see a very steady upward push in interest rates, which means that structured settlement yields are going to rise and keep rising to levels we haven't seen in over 15 or 20 years. My son can't believe we use to write structures with yields in excess of 12% at one time back in the 1980's and it is my opinion we are headed back to a similar stretch. High tax free yields on a guaranteed product such as a structured settlement make it a VERY compelling sale.
3. This brings me to my third point which is that given the financial condition of the US and political reality that we will likely see an Obama Presidency and both the Senate and House held by Democrats, it is almost a total certainty that tax rates are going up dramatically. Sure, it's an insane move that will cripple the economy further at a time when it can least afford it, but we are going to see every level of tax payer hit hard in various stages at the national and state level. Again, keep it simple people. High tax rates increase dramatically the value of tax free income offered by a structured settlement. It's a lot easier to sell tax free income to someone being taxed at 50% marginal rates as opposed to 20% marginal rates isn't it? Don't even get me started on what this will do to electrify structured legal fee's as lawyers face dramatically higher marginal rates of taxation on their fees.
4. Tort reform and it's bank rollers are about to get a cold dose of reality in the courts, legislature and in the pocket book. First of all, lets be real clear about the fact that AIG was one of the primary drivers of tort reform money and lobbying power over the last 20 years and they are going to be effectively cut off at the knees in their budget and leverage they once enjoyed. Other companies that in flush times could fund multi-million dollar lobbying and contribution budgets don't have that leverage and will come under increasing scrutiny. The wave of foreclosures, bankruptcy's and personal financial misery is going to acquaint a lot of citizens with the fact that laws regarding debt and access to the courts have been changed dramatically in the last ten years. I predict a wave of populist activism to halt the tide of tort reform and a trial lawyer friendly congress and President is only going to fuel that change. The US Justice depart will be cleaned out and the corporatist Republican appointees removed with a more activist, pro-consumer group taking it's place. In short, the climate for litigation, the judicial appointments and legislative orientation is going to be far more pro-consumer then pro-business and that is going to revive a lot of litigation that has been dormant or defeated over the last ten years.
5. The shift of structured settlement sales away from defense domination to a more plaintiff directed process will be traumatic but ultimately liberating for our industry. As it stands now NSSTA appears to have two jobs, worrying about attacks on section 130 and complaining about factoring companies. SSP for it's part appears to have one task and that is complaining about NSSTA. Our trade associations have become stuck in a dual modes of playing defense on what they have and complaining about people who are trying to take it away. Leadership in new markets, new products and ideas is important, but a re-energized base of professionals who realize the value of their product, know how to present it properly to the end consumer and make it part of a comprehensive settlement package are going to dominate our business over the next ten years. It's basic blocking and tackling, to use a football analogy, and a fresh commitment to reaching the trial lawyer and end consumer directly is going to pay amazing dividends. The tools to reach directly to the trial lawyer and the consumer are readily available on the internet ( obviously available through a channel on Legal Broadcast Network if you are really smart ) and you only need to tell the basic message of structured settlements, do your job and get in front of your clients each day. Whether you are defense or plaintiff oriented the movement has to be to educate the trial lawyer and the claimant every single day as that is where the decision is going to be made.
Lets do the math again people. Exceptional safety of principal+guaranteed tax free income+High interest rates+high tax rates+a Receptive audience= Major sales opportunity for those who are prepared. The money at settlement has to go somewhere, it can't go in the mattress! Your consumers are begging for direction if you'll just get in front of them and tell them what you have to offer.
I will touch on what structured settlement producers can do to prepare for this golden age in my next commentary and broadcast of Speaking of Settlements, but until then how about considering getting out of that basement bomb shelter you call an office, calling your local trial lawyer association and offering to do an article in their publication on the safety and benefits of a structured settlement. Other then those states that have been "purchased" by another structured settlement broker, I can guarantee you will find a receptive audience.
As I said, the Golden Age of Structured settlements is about to arrive and the people who prepare today and plant the seeds will reap a huge harvest in the coming years.