The answer to the above lawsuit funding question comes up a great deal in day to day business in the litigation financing industry. More goes into underwriting a lawsuit loan or cash advance 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 lawsuit funding underwriter. Most professionals in this arena are usually derived from a few occupations. Below we discuss some of the most common.
Attorneys/Legal Professionals
By far the most common 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 to the pre-settlement loan underwriting process. This familiarity helps with client relations and also assists in having intelligent dialogue with those legal professionals handling the cases.
Insurance Adjusters
Individuals who have worked as property and casualty insurance adjusters also possess valuable experience applicable to the lawsuit funding 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 they 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 advance cash now for pre-settlement loans.
Risk Management Specialists
Risk management is a large part of lawsuit funding. Although not involved with the analysis of any particular case, 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 lawsuit cash advance funding or pre-settlement loan underwriting contain the above functions is 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.
Above we outlined 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.
Thank you for your interest in the lawsuit cash advance business.
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