As anyone who watches the AMC drama, “ Mad Men” knows, the award winning show is focused around the creation of images and sales campaigns on Madison Avenue back in the early 1960’s featuring a group of characters whose lives are riddled with secrets and lies. The primary character is that of the suave, gifted ad man Don Draper, who carries the foundational secret of the show, which is that he stole the identity of a dying soldier in Korea, Don Draper, so that he, Dick Whitman, could avoid going to war and possibly dying himself. The resulting secret of this stolen identity eventually cuts a path of destruction as he needs to go to increasingly great lengths to cover up the secret, but the destruction is greatest in his own soul and mind as he knows his outer life, image and success are all a lie, despite his considerable gifts and talents.
As I watch this drama, I am repeatedly stuck by the similarities between the structured settlement profession and Don Draper, as each is outwardly successful, but at it’s core is harboring a secret that eats away at it’s life and threatens to eventually bring them to either ruin or a diminished state. As I outlined in part one of this commentary, the structured settlement market has two pillars that drove the growth of the profession, one is that the basic product solves a critical planning and financial problem for the vast majority of personal injury victims. The second is that the product also provided a savings off the cost of a claim through the use of present value of money, by bridging the difference between what the victim needs and what the company wants to pay. It was a product and process that worked for both sides.
However, somewhere along the way, and I was there in the middle of it when it occurred in the early to mid 1980’s, the present value edge that provided a benefit to the casualty companies morphed into something more sinister and began the process of rotting that second pillar.
What started as a “win/win” deal for both sides, in what is and will always be a fundamentally adversarial transaction, became a means of hiding the true cost of the annuity through keeping secret the cost, a tool in far too many cases for cheating uninformed, unrepresented plaintiffs out of the fair value of the claim. This lie went so far that structured settlement professionals working for casualty companies would refuse to verify the cost of the annuity that funded the plaintiffs benefits on the grounds that, “ If we tell you the cost the IRS might say you are on constructive receipt of the money and take away your tax benefit.” The fact is there was never any such ruling or legitimate premise to this statement, but this lie permeated the profession so that casualty companies could keep an even larger discount on the settlement then the interest rate spread already created.
Once this first lie was debunked, we then were treated to other fundamentally flawed secrets such as rebating programs on the annuity commissions ( Think Spencer vs. Hartford which just settled for $74 million), as well as internal “approved lists” which essentially steered money to in house life markets or to select annuity companies, which then steered money back to their partners.
We can endlessly debate who did what over the past and I have no desire to revisit who was to blame. However, the facts are that these programs were established and run so that the casualty company had an additional economic benefit beyond the present value spread, and their economic incentive in continuing to promote structured settlements through their claims process hinged in many cases on these programs. We can argue if these programs are good, bad or indifferent, we all have our opinions, but the fact remains that much of our markets growth was fostered by these fundamentally flawed concepts, many of which are now being revealed in court cases that will in all likelihood further curtail the economic incentive of casualty companies to include structures in their claims process.
I feel the course of history and legal actions that have occurred, and continue to wind through the courts, will eventually end any program that has as it’s foundation the premise that it offers an undisclosed edge over the plaintiff and limits their financial their options in choosing a structured settlement.
So the question now is, once these programs are ended, will the newly transparent process that allows the injury victim and their lawyer greater transparency, continue to provide sufficient economic benefit to casualty companies to promote structured settlements?
I’ll address that in part three of this series next week, but until then it is my belief that the first step in getting healthy is admitting the secrets, dealing with the consequences and then rebuilding on what is honest, strong and good about our profession. We have a lot to offer just using our talents, products and skills, but staying in a perpetual state of denial and living in fear of discovery of the truth is no way to live.
Just ask Don Draper and the staff at Sterling, Cooper, Draper and Price.
(Watch for part three of this commentary on The Settlement Channel, offered by Mark Wahlstrom, one of the nations leading experts in structured settlements, structured legal fees and settlement planning.)