Over the years, claims handling has undergonesignificant transformation. Specialization by line of business,regionalization of claims operation centers, and a far greaterreliance on technology are just a few of the changes we in theclaims world have experienced. The typical claims adjuster roletoday is geared toward working at a desk and successfullyleveraging technology. In the past, there were considerably moreclaims field office locations, with adjusters spendingsignificantly more time out of the office conducting all facets ofclaims handling face to face.

Unfortunately, as our world evolves, many claims professionalsmay not be taking advantage of time-tested tools used in the lossresolution process. This is especially true as it concerns the useof structured settlements. 

About a year ago, I was briefing the head of claims at a majorcasualty company concerning a high-value case on which I wasbrought on to review. As part of the settlement strategy, Irecommended starting the negotiation with a combination of cash anda structured settlement.

“What's a structured settlement?” he replied.

Why Incorporate Them?
There are severalreasons for claims departments to incorporate structuredsettlements. Let's start with reserving. Early involvement of astructured settlement consultant in the claims resolution processcan assist the claims professional in his or her exposure analysisin order to establish accurate case reserves.

Underwriters and actuaries rely on claims to establish casereserves as timely and as accurately as possible. Poor reservingpractices can lead to premiums that are either too high or too lowfor a specific line or an entire book of business. This is aserious problem that directly impacts a casualty company'sbottom-line profitability and ability to successfully compete withother carriers.

Using Structured SettlementConsultants
Accurate reserving is especiallyimportant for larger cases because these high-exposure cases havemore influence on premium pricing than do the smaller ones. Duringmy 8 years as head of the Travelers' Major Claims department, Isupervised more than 250 claims professionals. Approximately 80percent of Travelers' claim indemnity spend was on about 20 percentof the cases handled in the Major Case Unit. It is critical thatthe claims professional, using all the resources available, asaccurately as possible, estimate the company's ultimate financialexposure on these high-exposure claims.

Structured settlement consultants are experts at understandingfuture medical and living costs, and can help with the damageevaluation. They can help claims professionals establish moreaccurate claims reserves through the pricing of future medicalcosts, by providing cost estimates of wage replacement whileassisting with the coordination of public assistance benefits thatmay be at risk through a claims settlement. The structuredsettlement consultant can help align the costs to fund claims forfuture damages with future dollars.

In addition to timely and accurate indemnity reserving, thereare also benefits in minimizing legal expense with the timelyrecognition of a case's value and, in many instances, settlementnegotiations conducted sooner to thereby reduce discoverycosts.

Another significant value a structured settlement consultant canprovide is a rated age, or sub-standard age rating. Using a ratedage can help to produce a benefit stream to reflect the futurecosts of medicals and wages at a cost we cannot provideotherwise. 

Claims departments need a reminder. Structured settlementconsultants are a no-cost resource that your claims teamneeds to leverage. What other expert is available to youat no cost? These consultants, who are paid a commission from thelife insurance company that issues the structured annuity, offerexpertise in quantifying damages and developing negotiationstrategies. They can also handle the settlement paperwork.

When To Consider 'Structure'
“What typesof cases are best-suited for structured settlements?” is a questionthat inevitably arises. One answer is cases involving minors andthose with brain damage. These are obvious ones, because the courtmay insist on a structured settlement as a condition of thesettlement. 

Beyond that, a claims professional should lookat a structured settlement when confronted with a case where thedemand includes future damages. In addition, claims should focus oncases involving total disability or when a future payout is likelyto be greater than $500,000. We should include that structures areutilized on cases of all sizes, with structures as low as$15,000. 

Application In Workers'  CompCases 
Nowhere in claims is a structuredsettlement a more obvious win-win negotiating tool than withworkers' compensation losses. Start with the nature of most stateworkers' compensation systems. Typically, an insurer does not haveto settle and can elect to pay the claim as mandated by statute andschedules that may or may not fit the needs of the workers'compensation claimant. That said, most workers' compensationcarriers prefer to settle claims. Capping medical inflation and thefuture unknown clearly carries a benefit for the insurer.Structured settlements provide a flexible tool to settle suchclaims. 

Today, liability and workers' compensation carriers are requiredto report certain damage payments to Medicare, which does not allowa settlement that shifts future medical costs from a defendant orits insurer to Medicare or to the taxpayer. 

Medicare's interests must be protected in any settlementinvolving a qualified Medicare beneficiary. The Medicare Set-Aside(MSA) is an insurance industry accepted and Medicare's recommendedmethod to protect Medicare's interests and allow settlement ofworkers' compensation claims. I have also seen set-asides used inthe settlement of certain liability claims involving futuremedicals.

Here is the lesson for claims department: By using a structuredsettlement to fund the MSAs, you meet your obligation to Medicareand free reserves to use in other parts of the settlement, such asnon-Medicare-covered medical expenses which are often roadblocks tosettlement.

Let's say you have a reserve set on a claim for $400,000. Youconsult with a Medicare specialist, who says that $125,000 cashwill be needed for an MSA. That effectively leaves $275,000 tonegotiate a settlement. If you structure the MSA, then the amountneeded to protect Medicare could be as much as 40 percent less thancash or only $75,000 (cash seed and annuity premium). So, insteadof having $275,000 to settle the claim, you now have $50,000 more,which could mean the difference between settling a claim ornot. 

Finally, structures bring back creativity tothe negotiating table. Most experienced claims professionals knowthat providing a settlement offer that includes cash plus futureannuity payments that protects the future needs of the claimantwith guaranteed payments at the time those payments are needed isthe best outcome of any claim and for all parties. 

Cash plus a structured settlement designed by a structuredsettlement consultant leverages the claims professional'ssettlement autonomy, providing far greater flexibility and appealthan a lump sum cash offer. Structures can include a guaranteedpayment period or a “second to die” option to help a spouse orchild.

A Vital Reminder
We use structuredsettlements in our claims process because we believe that it's amassively valuable tool. It helps us get what every claims personcherishes: a closed file at the right price, where you feel goodabout the work you did and you've got an outcome that you think isright.

That comes from a recent speech about claims operationsdelivered by Richard Woollams, chief claims officer at AIGCommercial Insurance. Woollams' comments raise an important pointabout how to view structured settlements— namely that they are notjust another financial investment. 

A structured settlement is not designed to make the claimantrich. It is, however, designed to address the claimant's specificneeds through tailored, tax-free income. The funding annuity isheld by a well-capitalized, regulated institution and payments arebacked by state guaranty associations (up to certain limits).Changes in the stock market are not going to affect a person'spayment stream. 

For the casualty company, the structured settlement offers theprospect of more accurate reserve allocations and ultimately theability to move liabilities off the books. It also shows evidenceof bargaining in good faith, a crucial legal standard in manystates. 

Let's review the perks: faster case closure, greater efficiency,fewer reserve problems, and better legal protections. These arejust some of the many reasons I have pushed structured settlementsin claims work for more than four decades.