The incredible, shrinking structured settlement market.

As I noted below, Prudential dropped a bombshell on the structured settlement market when they announced on a Friday afternoon at 5:00 pm that they were closing up their non-qualified structured settlement division and drastically altering the way they would handle structured legal fees.

While this one is another of those " yes we are shutting down a product line, but we are staying in the business " type announcements, it is hard to come to any other conclusion other then that Prudential's management doesn't support that market any further and is restricting dramatically the types of business the unit can write.

The sad fact is that while these announcements all put their particular spin on things, what we have for a fact is the following:

1. In the last 5 years we have had ZERO new life markets enter the structured settlement business and other then a few rumored initiatives with Mass Mutual and Mutual of Omaha that I've heard kicked around, there are no new companies on the horizon.

2. In the last 5 to 7 years we have seen ING, Canada Life, Transamerica, AEGON, Genworth/GE Capital, Mass Mutual and Aviva all pull out of the business.

3. In the last 9 months we have seen AIG/American General crippled by the collapse of the financial products unit at AIG, Hartford's credit rating and stability hammered by huge reserve requirements related to their variable annuity business, Allstate stop writing rated ages and put limitations on their per case capacity and now Prudential shutter with no notice their Non-Qualified annuity program and revise their underwriting on structured legal fees.

Ladies and gentleman could we please stop pretending all is well?

Could we also ask NSSTA and SSP to stop doing their Frank Dergin impersonations and telling us there is nothing to worry about and to move along, move along.

The cold fact is our industry is shrinking dramatically at the very time when our product is most needed and desired by trial lawyers, plaintiffs and trustee's around the country who want guaranteed, insured, tax favored cash flows that will allow them to get the most out of their money and not expose it to stock or bond market risk. I can speak only for my situation but I have NEVER had greater demand for my products, services and ideas from trial lawyers and injury victims then I have had over the last nine months during which our industries capacity to service these needs has collapsed.

During these nine months, instead of real discussion by our leadership IN PUBLIC AND NOT BEHIND CLOSED DOORS of the capacity and market concerns that threaten to cripple us, we have been treated to the same drum beats of what our industry needs to worry about by our leadership. Those being single claimant 468B trusts, factoring marketing and some mythical concern about the viability of section 130 in the next congress. The fact is from the perspective of the regular broker in our business single claimant 468B is a total non-issue, factoring while annoying at times has almost zero impact on the sale of our product to new clients and section 130 is locked in tight as part of our tax code and would take a major effort to dislodge as it is generally considered excellent public policy after 25+ years.

In short the perceived concerns and attacks have more to do with our trade associations lawyers and other experts fanning the flames of battles long ago won or lost instead of focusing primarily on new markets, new life companies, new products and new alliances.

If you want my opinion, and if your reading this far I'll assume that you do, on why we are losing life markets it is because we have lived by the motto of "flying under the radar" for so long that we have no alliances in the financial services community, no advocates outside of the settlement divisions in the life markets and quite frankly no one in a $400 billion company cares about some settlement division that gets shut down when the majority of their agents, brokers and planners can't access the product. I mean really, think about it. Who at those companies, outside of the divisions at Aviva or Prudential that were directly affected could have cared less that Aviva and Prudential shut down entire product lines?

Show me ONE Aviva agent or broker that had access to the structured settlement product. Show me ONE Prudential planner or broker that had access to their non-qualified products. The fact is they don't exist and because they don't who is there at the life market to argue our cause and promote our product in the big picture?

We have isolated ourselves as a profession, created unreasonable barriers of entry for new planners and brokers and our trade associations have pursued the interests of the largest players at the expense of growth in new alliances and products. For 25 years we have given the back of our hand to the life insurance agents, financial planners and plaintiff advocates that should have been our natural allies and we are now reaping the harvest. At the end of the day, when there is no natural allies or markets inside a life market to continue a product line, eventually the life company is going to pull the plug when hard times come and choices have to be made. Lets face it, are they going to cut their pension or regular annuity business or do you can the structured settlement division?

The long and short of it is that we are facing a crisis in capacity and I feel that we are going to see further tightening over the summer as companies continue to make tough decisions or decisions are forced upon them by market events. I hold out little hope that reactive leadership fighting the last decades battles, many of which should have never been fought to begin with, has the will or resources necessary to find new markets.

At the end of the day it will be up to the brokers and leaders who started and nourished this business to take back leadership of our industry from the life companies and build a compelling case for our product and services that attracts new money, new players and new products. Injury victims desperately need what we have to offer and we can not stand buy and wring our hands any further about business conditions. It's time to reshape our approach and build alliances and we need to get busy.

Posted on May 30, 2009 .