The Great COVID-19 Settlement Trap
How many plaintiff attorneys are unknowingly harming their clients
Remember when interest rates were higher? At that time, most reputable and experienced trial lawyers strongly recommended that their clients consider structured settlements. Why? Because, they know the majority of personal injury claimants need guaranteed, budgetable income and often lack financial experience and discipline.
COVID-19 brought many tragedies and changes. One such change was historically low-interest rates and, with them, lower structured settlement annuity rates. The legitimate desire of many plaintiff attorneys to obtain what’s best for their clients caused them to begin viewing structured settlements as they would any investment alternative for themselves. “Low-interest rates are not appealing to me so I shouldn’t recommend them to my clients.” Settlement advisors were more than happy to pivot from structures (some already had) and began recommending investment management and trust services instead. After all, the recurring fee revenue generated from these offerings is remarkably more lucrative to the advisor than selling structures.
In 2020, the total amount of structured settlement funding was down by over 25%. 2021 was even lower. As a result, many claimants were harmed in the last two years. Unfortunately, this trend has not slowed. Just as COVID may have effectively stolen a year of education from many school-age children, we now have a wave of claimants bearing unnecessary investment risks.
Another change brought by COVID is all-time high building costs. So, let’s say a claimant’s home is leveled by a tornado. What plaintiff attorney would allow an insurer to rebuild a much smaller home for the claimant and blame it on increased building costs? None. Yet here we are. Interest rates are low and plaintiff attorneys are settling cases for pre-COVID values and suggesting that claimants forgo the guarantees of structured settlements and instead accept market risks (in all-time high markets) to try to make up the difference.
This new practice misserves many personal injury claimants in the long run. It ignores the very underlying truths for which structures were created - that the majority of claimants need guaranteed, budgetable income and lack the financial experience and discipline to enter the markets (historically high markets) with or without professional guidance. We simply cannot ignore the suitability issues we all know are unique to most personal injury claimants. What we would do with our money is the wrong question. It’s not our money.
The only appropriate remedy to this issue is to obtain larger settlement amounts. Why should this generation of claimants settle for less than they deserve? When rates were higher, reputable plaintiff attorneys insisted on the safety and certainty of structured settlements. Shouldn’t the same be demanded now?
Let’s insist on rebuilding the whole house, not convincing the claimant’s family to make do with a smaller one.