Hi this is Mark Wahlstrom, here with another edition of The Settlement Channel commentary.
Today I want to discuss the recently published production numbers for the Structured Settlement profession, which is circulated around this time each year ahead of semi annual SSP and NSSTA meetings.
The numbers show a substantial drop in structured settlement production from the various life insurance markets from $5,8 billion in 2016 to $5.5 billion in 2017. This despite marginal increases in interest rates, which make the product more attractive and would typically lead to increases in sales.
While this is still an improvement over the worst year, 2012, which was an abysmal $4.8 billion, it is still far below the peach years of 2001 to 2008 when the profession routinely exceeded $6 billion in annual production.
What does this seem to suggest? Has the settlement annuity market stagnated, is it a one year blip, or a sign of a longer term secular decline that results not just from low interest rates, but also a drift away from fixed rate structured settlements entirely?
I'll be discussing my ideas on this over the next few weeks, but for now I feel it is safe to say, in my professional opinion. that the primary reason for the decline is a combination of factors, all of which have created a negative image of this foundational planning tool in the minds of trial lawyers and injury victims.
First, yes the decline in interest rates over the last 8-10 years has had a huge impact, as it is difficult to get people to invest in a product with yields that often were less than 3% during this economic and market climate we have seen for the past decade.
However, of greater longer term importance is the emergence of trust companies and investment managers, positioning themselves as superior alternatives to the structured settlement annuity as a planning tool. The sustained bond market and stock market rallies, combined with relatively low tax rates, has made the tax free appeal of the annuity harder to sell, which combined with equity and bond market returns, has pushed more money to asset managers vs the traditional markets.
I'll discuss in my next commentary if I feel this is a good or healthy thing for the profession, as well as for injury victims, but the point is that the settlement profession now is being seen as a juicy target by asset managers who don't need access to structured settlement annuity product in order to market themselves as settlement professionals. I feel this trend, if measured properly and included in the production numbers, would actually indicate an INCREASE in production and largely accounts for the "LOST" $1.2 billion in production over the last 10 years.
In summary, the settlement profession, by clinging to a one product solution and doing their best to NOT market the product through the use of non-existent advertising budgets, has made their core product a "second choice" for many planners and attorneys.
I'll get into this in more depth next week, but for now it's important for lawyers, planners, brokers and others to realize the market has actually increased in size and is about to be significantly impacted by an influx of trust and investment advisors who actively sell against the core product.
I hope you enjoyed this brief update, watch for my next broadcast where I get into more detail as to the benefits and drawbacks of the asset management influx into the settlement planning profession.