The life settlement business is an unsettled territory in need of good regulations.[@@]

Nat Shapo, recently named as chief compliance officer for Coventry First L.L.C., Fort Washington, Pa., a leader in the life settlement market, says new regulations remain a top priority for the industry.

“Many jurisdictions either have no settlement law, or regulate viatical settlements but not life settlements, thus providing a haven for questionable practices,” Shapo says.

A life settlement involves the purchase of rights to life insurance policies from older insureds. A viatical settlement involves the purchase of life policies from insureds with terminal illnesses.

Shapo, 37, who served as Illinois director of insurance before going into private practice as a lawyer 2 years ago, says Coventry First is committed to working with regulators and other stakeholders to enact good rules.

“Part of the natural growth of the secondary market will involve the recognition that life settlements are basic financial planning tools separate and distinct from viatical settlements, which have a very unique and very narrow reach,” Shapo says.

Viaticals involve “desperate end-of-life decisions under great financial and time pressure,” he adds.

Coventry’s typical customer, on the other hand, has a life expectancy of 10 years “and the seller is a sophisticated policy owner who, with the benefit of professional counseling and financial planning, has decided that the policy’s market value outweighs the benefit of keeping it in force,” Shapo says.

Some observers see the life settlement business as a threat to the life insurance industry, because carriers count on a certain number of policies lapsing every year. But not Shapo.

“I consider identifying and seeking common ground with carriers a top priority,” he says. “Responsible actors on both sides ultimately have substantial shared interests. In fact, a well-functioning secondary market should benefit carriers by creating demand in the primary market as consumers see the full value of purchasing a policy.”