Who is Evaluating My Lawsuit Loan Application?
The answer to the above question comes up a great deal in day to day business in the lawsuit loan industry. More goes into being a settlement funding underwriter than most people realize. Analyzing case specific fact patterns, applicable laws, insurance issues, complex damages, and a host of other legal dynamics is the job of the settlement funding underwriter. Most professionals in this arena are usually derived from a few occupations. Below we discuss some of the most common.
Legal Professionals as Settlement Funding Underwriters
By far the most common settlement funding underwriters have a background in the legal profession. These individuals are usually in the best position to analyze the potential pitfalls in a case and thus the likelihood of success.
Attorneys, and sometimes even paralegals, bring their familiarity with the legal process when evaluating a settlement loan application. This expertise is invaluable with analyzing the case for purpose of getting lawsuit loan approvals. It also assists with client relations and having intelligent dialogue with representing attorneys, paralegals and/or assistants.
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Insurance Claims Professionals and Adjusters
Individuals who have worked as property and casualty insurance adjusters also possess valuable experience helping them to analyze lawsuit loan applications through the underwriting process. Not only can these professionals assess the merits of the case, but they are also intimately aware of case valuations.
A case’s expected value is often subjective. Many factors however, routinely go into the calculation. Pain and suffering, loss of earning capacity, lost wages and loss of consortium are simply a few examples of compensable damages. When considering these issues, former insurance adjusters use the expertise obtained through their working in the claims management field.
Factors such as the insurance carrier, personal relationships with adjusters, jurisdiction, venue and a host of others, often lead to an accurate assessment of a lawsuit’s settlement value. This “best guess” is very valuable to those lawsuit funding companies who need in depth analysis of their lawsuit loan applications.
Risk Management Specialists
Risk management is a large part of lawsuit funding. Although not involved with the analysis of any particular lawsuit loan application, lawsuit loan companies who employ risk managers do so to better diversify the investment portfolio.
By way of example, an analysis of the existing portfolio might cause the risk manager to conclude that the lawsuit funding company is holding too large an amount of Vioxx lawsuit advances in relation to the entire portfolio. The manager might then recommend a slow down in the acceptance of these cases for funding or even a temporary shut down until the ratio returns to an acceptable range.
Further, risk managers make sure that the exposure to any one case would not be catastrophic to an entire portfolio. For example, if there is a $40 million portfolio, the risk manager may suggest that no more than $400,000 be advanced on any one case. Because any lawsuit funding loss is a total loss, losing a $4 million dollar funding for example, would be a 10% loss of total capital and would undoubtedly be catastrophic to the fund.
It is important to understand that all pre-settlement loan underwriting departments employ the above functions in some shape or form. Whether the funder has a $4 million dollar portfolio or $400 million, the above disciplines are a mandatory prerequisite for a profitable lawsuit funding enterprise. Each lawsuit loan application is considered for funding under these parameters.
Above we outline a few of the most common professional backgrounds often employed by litigation loan companies. Of course, there are exceptions as the most important quality in any employee is integrity, regardless of previous experience.
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