Periodic Payment Reinsurance can be used to resolve taxable damage cases, as a means to do policy buyouts, and as an alternative method to structure attorney fees where, despite domestic insurer guarantees, a plaintiff or attorney is not comfortable with non qualified assignments. Periodic payment reinsurance is only available where the paying party is an insurer.
It could be advantageous in some situations, for a disability insurer to enter into a disability claim settlement using periodic payment reinsurance.
Examples of such claims include:
Claimant has no interest in vocational rehabilitation or return to work programs
Claimant is permanently disabled with no possibility of returning to work
There is an unclear or multiple medical scenarios for the long term
There is disputed medical treatment or disputed claim
Policy limits will likely being reached
The mechanics involve the disability carrier entering into a compromise agreement with the claimant, providing for future periodic payments within the agreement and obtaining the claimant's agreement to look solely to the reinsurer for future payments.
Benefits to Insurer:
Reduce Claim Reserve and avoid possible future adverse reserve development
Reduce or eliminate the expense and time required to administer payments, which in turn reduces the number of pending claims handled by adjusters
Transfer of obligation
Cost-effective benefits. In addition substandard underwriting is available, thus reducing the cost of the reinsurance agreement
Pass on investment and reinvestment risk
Reinsurer guarantees the payments regardless of the performance of the financial markets
Increased flexibility. Claimant's needs may have changed from those anticipated when the policy was established. Payment streams may be created to meet a variety of claimant needs thus giving insurers the ability to restructure their payment stream, improve negotiating position and achieve resolution of their claim
Elimination of liability feature available
Benefits to Claimant:
Increased flexibility. If the underlying policy only pays out until age 65, the benefits can be structured to go lifetime or provide COLA or future deferred lump sum payments. There is no need to adhere to the level and frequency of payments under the disability policy.
