The biggest stumbling block in settling the high dollar value workers’ compensation claims is normally the difference between what the claims professional believes the claim is worth and what the employee’s attorney wants. The claims professional will evaluate the claim on it merits including the nature and extent of the injury, the employee’s permanent impairment rating and any loss of earning capacity in the future. The employee’s attorney is looking to maximize the settlement amount for his/her client and attorney fee considerations often apply.
Settlement Negotiations Can Stall Over Total Value of Claim
Claim settlement discussions will also stall over disagreements between the employee’s attorney and the claims professional over the future amount of loss wages, degree of disability, the cost of future medicals or a life care plan and/or other areas of contention. The employee’s attorney may argue the employee will never be able to return to work, while the claims professional may maintain the employee can do sedentary work, even if the employee is unable to do heavy manual labor. The future cost of medical care may vary dramatically depending on the various “expert” opinions. .
Regardless of the reason for the difference between the settlement demand and the settlement offer, the “gap” can normally be closed and the claim settled through a properly constructed structured settlement.
Structured Settlement Can Bridge Gap, Create Win-Win Solution
Consider the example where the claims professional evaluates the settlement value of the workers’ compensation claim to be $300,000. The employee’s attorney, who is working on a 25% retainer agreement, demands $400,000 to settle the claim (the employee nets $300,000 if the claim is settled for $400,000). The claims professional and the employee’s attorney may be able to bridge the settlement gap with a structured settlement.
A structured settlement bridges the gap with the injured employee receiving $400,000 while the insurer pays $300,000 (slightly more or slightly less). This is possible with a structured settlement as the amount of the settlement is paid out over time with periodic payments. The injured employee and the employee’s attorney will receive the $400,000 over the time span set in the structured settlement (either the employee’s life time or a specific number of years).
The larger, future periodic payments the injured employee receives are paid from an annuity bought by the workers’ compensation insurer for $300,000. A lump sum now, in the above example, $300,000, would be invested by the life insurance company who provides the annuity. The growth of their investments over time often allows the life insurance company to pay out more than cost of the the annuity.
Structured Settlement Can Be Tailored To Fit Employee’s Needs
The structured settlement can be tailored to fit the employee’s immediate needs and future needs, which provides incentive for the employee to settle the claim. Depending on the needs of the injured employee and the needs of the employee’s family, the payments can be set up to cover any group of contingencies including lifetime income, guaranteed period income, current lump sum, future lump sum, cost of living allowance, future medical, etc. By allowing the injured employee to tailor the settlement while keeping the total cost under or at the amount the claims professional has evaluated the claim, a win-win situation is created for the insurer/self-insurer, injured employee and attorney.
For assistance on bridging the gap between what a claim is worth and what the employee’s attorney wants, contact us for more information on structured settlements.
Author Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: firstname.lastname@example.org.
Editor: Duke T. Wolpert, Director of Marketing, Ringler Associates is responsible for new business development across the carrier, TPA, and self-insured marketplace in the U.S. and Canada. Prior to joining Ringler Associates, Duke held leadership positions in the insurance, compliance and managed care industries. www.ringlerassociates.com. Contact: email@example.com
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