Structured Settlements Clients Self-Insured
Workers Compensation structured settlements has been a hot topic in the past. In talking with our self-insured clients, we have been reminded that we should produce a few more articles that pertain to the challenges of the self-insured arena.
We have been engaged in various claim projects and have recently conducted several surveys, where workers compensation structured settlements were widely utilized to ensure quality financial outcomes and reduce expense. A structured settlement is a financial or insurance arrangement that includes periodic payments that a claimant accepts to compromise a statutory periodic payment obligation or to resolve a personal injury tort claim.
Structured settlements have been utilized extensively for high value personal injury cases in the past. However more recently, have been used for a wide variety of circumstances including Medicare Set-Asides and Special Needs Trusts.
When the self-insurer or insurer settles a case with a claimant, it finds itself with a long term payment obligation. To fund the obligation, the defendant takes one of two typical approaches; delegates its periodic payment obligation to a third party who purchases an annuity (“assigned”), or purchase an annuity from a life insurance company (“buy and hold”),
In the “buy and hold” type of case, the defendant retains the periodic payment obligation and funds it by buying an annuity from a life insurance company. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The self insured defendant or insurer owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are contingent on someone continuing to be alive, then the claimant (or whoever is determined to be the measuring life) is named as the annuitant under the annuity.
In an “assigned case”, the insurer or self insured defendant does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the insurer or defendant transfers the obligation, through a legal device called a qualified assignment, to a third party. The third party, called an assignment company, requires the insurer or defendant to pay it an amount sufficient to enable it to buy an annuity that will fund the newly accepted periodic payment obligation.
While each method has its advantages, there has been an overwhelming acceptance of the “assigned” case method to reduce financial exposure and cash flow obligations and eliminate liability from the risk takers balance sheets. Either method will allow an organization to improve their financial condition and to gain strategic advantages over the competition.
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