Throw The Baby Out With The Bathwater

Articles that I have previously written in this space make it quite clear that I view the whole subject area of “life settlements” with great apprehension. So it should come as no surprise that I read the recent supplement of the National Underwriter on life settlements with some skepticism. The central part of the supplement was a roundtable discussion by 11 leaders of the life settlements business, which was hosted by Ramiro Rencurrell, president of the Life Insurance Settlement Association, and Steve Piontek, Editor-in-Chief of National Underwriter.

I commend the hosts for sponsoring this meeting and airing the views of this newest segment of our business. However, feeding my skepticism of this whole endeavor was my recollection of 3 other similar roundtable discussions in which I was a participant.

About 30 years ago one of the hottest financial products being sold was commodity options. You could buy options on everything from pistachio nuts to silver–with silver being one of the favorites. Huge profits were being projected, but because there was little substance to support the projections, the Better Business Bureau issued a very negative report on the practice.

Major purveyors of these options in our area cried “foul” and asked for a meeting to plead their case. I was president of our local BBB at the time and agreed to host the discussion. The meeting was incredible in its sense of wishful thinking by the sellers. Two men from the Arizona Attorney General’s office were also in attendance and the following day, based on what they heard at the meeting, shut all of the operations down.

Sometime later, single premium policies were being hawked as the last great “tax shelter.” Millard Humphrey, then Arizona Director of Insurance, invited me to sit in on a meeting of domestic companies that were making a particularly egregious type of this product. After a full day of listening to their arguments justifying the product, Humphrey shut all of them down. This debate was waged at the national level as well, and resulted in punitive legislation that we live with today.

While I was at the National Association of Life Underwriters, I hosted another such discussion where those marketing a variety of products generally described as “janitor insurance” tried to plead their case. They failed and major steps to clean up corporate-owned life insurance ensued.

The life settlements discussion covered by the NU supplement struck me as being intellectually a cut above some of the discussions cited from my own experiences. However, the overall objective seemed to be the same: justifying the marketing of the product (or service) and opposing restrictive legislation. Unfortunately, baddies have also invaded the field of life settlements similar to those who screwed up the marketplace involving the products mentioned earlier. The panel acknowledged that it was such abuses that were driving legislative proposals that would, in their words, “throw the baby out with the bathwater.”