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Life Health > Life Insurance

Where The Life Settlement Business Is Now--And Where It's Going

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On Oct. 4, National Underwriter Life & Health sponsored a roundtable at the Buckhead Club in Atlanta that brought together executives from several life settlement firms. The first event of its kind, the roundtable was an ideal setting for consideration of issues that are facing this quickly growing business at present and also for looking at the major challenges and opportunities that these executives will see over the next couple of years.

Steve Piontek, editor-in-chief of National Underwriter Life & Health, and Ramiro Rencurrell, president of the Life Insurance Settlement Association, served as co-moderators for the session. On page _ you will find a list of the life settlement executives that participated in the discussion. What follows is an edited version of the 2-hour roundtable.

RAMIRO RENCURRELL: One of the most important things going on right now is at the National Association of Insurance Commissioners and the Viatical Model Act that’s being rewritten. Some of the people around this table have been very active in giving their comments regarding the NAIC Model Act. But one of the important things is that North Dakota Commissioner Jim Poolman is still continuing to push the 5-year moratorium.

STEVE WASHINGTON:That issue was advanced by Commissioner Poolman at the May 3 interim hearing in New York City. We’ve actually done a lot of work through the Life Insurance Settlement Association to meet with commissioners to educate them on the issues surrounding life settlements. And on this particular issue we took the view that this is really not beneficial for consumers. This is actually going to harm consumers–it’s going to deny them access to the market value of their insurance policies. And as a result of our efforts we think that currently where that stands is that while that proposal is still being talked about, we’re hopeful that it might actually not succeed.

SCOTT PAGE: The 2 primary changes sought by LISA for the NAIC Viatical Settlements Act are (1) the recognition of life insurance producer authority to act as a settlement broker, holding those persons to the same standards applicable to viatical settlement brokers and recognizing that those individuals exclusively would represent policy owners in the course of transactions with settlement providers, and (2) recognizing that premium finance-based transactions would be subject to regulation just as viatical settlements are.

Our position is that the 5-year moratorium could ultimately be more destructive to the insurance carriers and providers than beneficial. The moratorium is designed to prevent people from purchasing life insurance policies “solely” for the intent of selling them once the contestability period has passed. However, this determination is nearly impossible to make and if this moratorium holds up, the carriers will end up alienating customers who would have considered a policy for so-called ‘legit’ purposes.

RAMIRO RENCURRELL:One of the things coming out of this NAIC hearing and the Model Act is the need for definitions and educating the public on what really is stranger-owned life insurance. Is it stranger-owned life insurance or is it investor-originated life insurance?

BRYAN FREEMAN:I think the interesting thing, getting back to the 5-year moratorium, is that the viatical settlement working group of the NAIC was together for roughly a decade. And numerous times over that decade they talked about what they should do about policies and how long before you should sell them. It was debated very passionately. And they made decisions that 2 years was a good place to be. That is consistent with the contestability and suicide period, in policies it gives the insurers time to re-look at their underwriting frankly if they want to do that.

There were longer periods discussed in the viatical settlement working group and they just wouldn’t go there because the commissioners at that time felt that they were already taking the property rights from people within 2 years, pretty much, in most states, except under a very limited set of circumstances. And what we would be doing, if we changed it to 5 years, we would further erode the people’s value in life insurance by adding another 3 years.

And what I think is fundamentally misunderstood about life insurance is that 40% of all policies lapse within 5 years. So 40% of all life insurance consumers will no longer have real value in their life insurance policies.

SCOTT PAGE: It’s well recognized–something that has stood, and must be permitted to continue to stand, the test of time–that insurance policies are assignable. It’s the dynamic growth of our industry coupled with the issues raised in the insurable interest context that brought this issue to the forefront of the insurance industry and life settlements in the first place. If the issue of insurable interest is resolved, I think the issue of assignability will retreat from its current emergence.

STEVE PIONTEK:Can I ask you what was the genesis of Commissioner Poolman’s 5-year proposal at this point; how did that come about?

BRYAN FREEMAN: I’m not 100% sure. But I can tell you this: It did not come from the American Council of Life Insurers. It did not come from us. So it came from somewhere else.

NATE EVANS: I think some of the more restrictive proposals such as the 5- year plan really have come out of some of the poorly conceived investor initiated non-recourse programs. This is unfortunate. Life settlements are one of the most consumer friendly innovations developed in recent times. And it’s too bad as a reaction to some of the poorly conceived programs that life settlements are getting dragged in. It’s hard for me to imagine the commissioners will go to something that is really so anti-consumer as the 5-year moratorium.

TED KILKUSKIE: I just want to take that a step further. I think rather than being poorly conceived, some of the [non-recourse premium financing] programs that have been offered are outright abusive. And I think they take advantage of consumers unfairly because of lack of disclosure and lack of identification on what the issues are and what the rights are, that many times consumers are giving up without fully understanding what they are buying. Now we have a situation where 34 states have laws that really looked at the 2-year contestability period, which I think is very fair to all parties, whether in a secondary market type transaction or not.

This gives time to research what’s happened, time to really have people protect their interests if they need to be protected, time for the consumer’s rights to be protected. And rather than educational and disclosure type proposals, which could be enforced and enacted within that 2-year period, there is an overreaction–for what reasons I’m not sure–to really take consumer rights away for that 3rd through 5th year. It doesn’t make any sense. In order to extensively protect consumers, somebody’s pulling out a sledgehammer where it’s more of a situation that they should be using a flyswatter to kill a fly. Go after the abuse, don’t harm the consumer.

DAN BOCKHORN:I think the key to that is that the insurance carriers themselves have all accepted those programs. Ninety percent of the time the carriers are aware of the lien or collateral assignment on the original ownership forms. So it seems to me that the carriers were and are very aware of who was actually originating the policies. And what they were looking at is adding premiums to their bottom line. And they weren’t concerned a couple of years back about who was originating the policy, whether that be a premium finance company or an insured. So now they’re reacting to the life settlement market. They are all aware that they were stranger-owned or investor-owned policies from the very beginning.

LARRY SIMON:You know what’s interesting is that the end of last year it became very evident when the carriers started closing down the non-recourse premium financing that they had the ability to do it. And I’d say they probably closed down 80/85% of the market just by their actions. So if they can self-regulate and watch what they’re selling then what’s the need for the 5-year program in response to that? The new programs coming out of the market are longer term programs–10 year programs, 15 year programs, no agreements to resell. It’s a whole different market today than it was a year ago, 2 years ago. Unfortunately, you had people abusing the system like you do everywhere, all the time, and trying to sell free insurance. But the market has corrected itself for the most part and those programs are not available. There are still some programs operating under cover, under the table, which we’d like to see go away. But for the most part the market has cleaned itself up. And the insurance companies have been a big part of saying, “No more.” So to go 5 years is just overkill. And again, it’s taking away the consumer’s right.

STEVE PIONTEK:But if the ACLI is not behind the 5 year thing then who is pushing it? Consumer advocates are against it.

BRYAN FREEMAN:It was probably an idea of one man.

ROB HAYNIE: The real issue is that there is an education deficit that exists between the consumer and their advisor on what this does. That’s all it is. I mean, to be honest with you it’s something that as an industry association, as individual companies, we need to work on every day to go out there and educate this marketplace.

STEVE PIONTEK:Can you speak to some of the educational efforts that you’re making in terms of consumers?

ROB HAYNIE: One thing we’ve done as members of an association is to increase membership, increase awareness. We’ve created materials that don’t brand an individual company, but instead a marketplace. What we’re doing today is a great step in the evolutionary process. We attend trade organizations as an association. We go out there. You know, the defense walls aren’t up. People are less intimidated to go up and hear quote, unquote, a sales pitch.

This marketplace is not that complicated when you break it down. You have a freedom, an opportunity to have an asset appraised that for years, or as long as anybody can remember, people never viewed as an asset, a tangible asset, which is your life insurance policy. This industry really hasn’t started yet; it’s still in it’s infancy. So you’ll see the wirehouses getting in.

TED KILKUSKIE: I think the best way to educate the consumer is through educating their trusted advisors, whether they’re producers, financial planners, etc. I think the best way to do that is through the delivery of continuing education programs, which are regulated. They’re filed with the states. They’re not marketing statements and they’re very factual. It’s been tried and true in the insurance business, particularly, for quite a while. And I just think that’s the best way to do it. Online is probably good, in person is even better. We’ve done [at Coventry] in the past 4 years probably more than 50,000 sessions and believe we’ve gotten a lot of benefit from it.

LARRY SIMON:We need to educate the people who represent the seller about what you can do, what you can’t do, what’s a good deal on a policy, what is a bad policy, when a person should be in a settlement, when they shouldn’t. This is not for everybody. Everybody shouldn’t be selling their policies. But in many cases, it’s a good investment alternative for those people.

BRYAN FREEMAN:You know, I think it’s important to actually look at the name of this too. I think the best name for this kind of insurance that is initiated in a way that none of us want to deal with is probably what Joe Belth called it, “Spin Life” because I see these people who are doing that and who have been the promoters of these programs as real speculators. And what he called it was, “Spin Life– Speculator Initiated Life Insurance.” We talk about investor-initiated, but really they are speculators. Because all the life settlement market is a stranger-owned life insurance market or investor-owned. So if we really boil it down, we’re talking about somebody who is speculating. And we really probably should decide we’re going to have a nasty name for it and probably let that be it.

As to education, one of the things that the Life Settlement Institute has been involved in is putting out a white paper educational booklet for members of Congress.

STEVE WASHINGTON:It has just been put together. So we actually now have copies of it. It will be used. We put it together in part to address the ACLI’s proposal which has not yet been formally submitted to Congress. We don’t know whether it will be, but it’s been floated in Congress, to impose a 100% excise tax on the acquisition cost of any “taxable acquisition” of an interest in an “applicable insurance contract” that’s been issued within its first 5 years. We need to bring the regulators up to date with how this industry has changed, about how now at this point institutional investors are the investors in this industry. And as well, there are other aspects which have really themselves changed. So we’ve prepared with respect to Congress a document that really is intended to serve as an educational tool that explains how life settlements work, what they are, statistics on lapse rates in policies and also to state a position on the excise tax proposal.

DAN BOCKHORN: One of the things that I’m concerned with as we talk about education is we seem to focus in only on the NAIC and educating those commissioners and insurance agents. But the business is evolving into the wirehouses and the broker-dealers. In New York we had a representative from the National Association of Securities Dealers talk at our luncheon. And I think it’s imperative as an organization that we not only focus in on the NAIC but we also need to focus in on the NASD and educate their governing body to have life settlements work within their wirehouses. Because as we know the majority of their representatives aren’t insurance licenses but the vast majority of them are NASD licensed.

So as we’re looking at paying out commissions to different representatives, we have to focus in and make sure that as an organization we’re educating the NASD reps so that those people can participate in life settlements with the expectation of being able to be paid and without having regulatory issues with the NASD. And I think that we should include those individuals in our meetings and actively invite their governing body to all of our meetings. Because I really believe that in the next year or 2, those are the folks that really are going to control the vast majority of the policies that are going to enter our market.

RAMIRO RENCURRELL:Dan, I think the message from LISA as an association is we’re not only seeking to get closer to the NASD, but we are now exhibiting in most of the industry shows: at the Association for Advanced Life Underwriting, the National Association of Insurance and Financial Advisors, the National Association of Independent Life Brokerage Agencies. We’re going to have a booth at the ACLI’s annual meeting. The message is that we are there. Come see us. Let’s talk and see how much we do agree on issues and want to resolve the issues because we agree that we have problems in the industry.

BRYAN FREEMAN:And I think as an industry we’re closer to the life insurance industry that most of them think. We actually have the same goals and aspirations. They want to sell more life insurance. We want to help them sell more life insurance because we want to help them make life insurance more valuable in the minds of consumers who don’t value it now. And any time you get a secondary market for any financial product, if you go back and look at mortgages or any other, the product becomes more valuable just because the secondary market exists.

RAMIRO RENCURRELL:On that note, let’s go to another issue–what responsibilities do the agents have to their clients to offer a settlement option and what are we doing as an industry or as individuals to educate these producers to present a settlement as an option?

TED KILKUSKIE:I think there is a fiduciary responsibility. These people are the trusted advisors for their clients and as so they represent themselves as showing their clients all options that exist in the market. And I think it gets down to educating the producers so that they understand what are the best options for their clients.

I also think some of the education really has to go to the carriers and the regulators. I’ve heard the term used quite a bit with what’s been going on with the business in the past couple of years–”throwing the baby out with the bathwater.” We get painted with a broad brush. I think one of the big problems with an emerging growth marketplace is that people in very important positions in carriers and in regulatory positions haven’t taken the time to educate themselves about the nuances in the market versus just looking at all financing in a certain way. And all of a sudden they try to regulate it with one broad stroke instead of separating the good from the bad. They’re throwing out the baby with the bathwater.

STEVE PIONTEK: It’s been said that insurance companies write a certain amount of policies based on the fact that they are going to lapse. So are they really against life settlements on a gut level because something they’ve been doing for a long time is invalidated by what you are doing.

JIM CAVOLI: Even John Skar from Mass Mutual, whom everyone knows, has said there has always been adverse selection, that the people who are on the shorter end of the life expectancy scale tend to have the lowest lapse ratios. So that’s who sells policies in settlements–people who have some impairment. It’s a bit of a red herring, I think, to say that this is going to drive lapse ratios a lot higher. Presumably most of the people who are doing settlements have those policies that would have a lower lapse ratio than the average.

STEVE PIONTEK:In one sense, it’s hard to see why agents wouldn’t do this when it’s so beneficial to their clients. But what happens if their company or their broker-dealer prohibits or says they can’t do it?

JIM CAVOLI: If agents are not allowed to present settlements, that is going to become a growing liability for very large companies who prohibit. The agent has some cover. My company tells me I can’t sell a policy, so who am I to tell you otherwise, right? But the companies are seeing a lot of pressure. And we’ve talked with many broker-dealers who are saying, “I don’t think we can keep doing this,” but the transaction is a good one. The carriers have even said so: “We love settlements. We just don’t like this 2 year thing. You know, these quick loans.”

But the reality is they are beginning to recognize that. All these people who are prohibited from the settlements in the past are going to have to be allowed to do them. I don’t know under what conditions. They’ll probably make some pretty strict rules, which is probably not a bad thing. As long as they protect consumers and don’t disallow the settlements to happen. But it’s probably where this is going to go. And those companies are going to have to loosen up.

DAN BOCKHORN:As we educate the broker-dealers it’s imperative that they offer a life settlement just like any other product. So I think that it’s our obligation to educate the broker-dealer and make sure the broker-dealer makes a profit off of this transaction like we do any other transaction. If they’re selling annuities, life insurance, life settlements, the broker-dealer needs to be compensated so that it’s a better financial tool for their field agents. That’s the bottom line.

SCOTT PAGE: Many broker-dealers recognize the potential in life settlements and have opened up their agent networks to exclusive groups of providers after a comprehensive due diligence screening process.

However, the continually evolving life settlement environment may provide its own structural solution to broker-dealers who do not permit settlement transactions. As life settlements become more prevalent, agents may abandon sales positions with insurers having such a prohibition, allowing them to provide the most comprehensive professional guidance to their clients. Ultimately leading insurers and others imposing such prohibitions to abandon those else they lose market share as agents leave their fold.

BRENT BUSH: Insurance companies had a lot of indigestion over the years from omitting to tell the customer a whole lot of issues–things that were benefits for the customer or different sales techniques that maybe they didn’t fully disclose. This is another benefit that they are going to have to support for their agents because it’s just another benefit for the customer that needs to be addressed. And they’re not going to stand for more hiccups in the courts.

TED KILKUSKIE:There are a set of guidelines that a number of insurance companies ascribe to: the IMSA guidelines. I think a number of carriers have used this Good Housekeeping seal from the Insurance Marketplace Standards Association. You can see it on their websites.

I just want to quote from the 3 very quick points where carriers seem to be saying, “We believe in this,” but where their actions prove otherwise. Especially carriers that have their own agents where they’re directing the actions of the agent. The first point says, “To conduct business according to high standards of honesty and fairness and to render that service to its customers which in the same circumstances, it would apply to or demand for itself.” Point 2: “To provide competent and customer-focused sales and service.” And point 3: “To engage in active and fair competition.”

There are a number of other points but I think just those first 3 really hit the nail on the head. I mean, what senior executive at an insurance company, when looking to upgrade a policy for better features and benefits, if they had a million dollar policy that had $10,000 of cash in it and they could get $50,000 on the secondary market, would deprive themselves of doing that? They wouldn’t. As a matter of fact I know that a number have. They’ve kind of talked out of both sides of their mouth.

So I think on the broker-dealer side it’s more the fear there. I’ve spent a lot of time with those folks too. It’s compliance, it’s getting sued. So this is something new. So instead of taking the time and learning about it as I talked about ad nauseum, they’re just kind of ducking the issue. Feeling, well if we just put up the barricades, this is one more thing that won’t come in the door that we can potentially get sued for. So it’s something that quite a few firms–I think there are about 50 or so firms that we do business with–have done due diligence and have accepted the fact that this is good for clients. A number of them do it on an exception basis. Some still bar it. But I think, again, it gets down to education. Understanding what this is about and that bottom line and very quickly they can learn how good this is for the clients.

And don’t get the sale of a policy mixed up with the investment in policies which can be something quite different, and which is where most of them get turned around.

STEVE PIONTEK:It’s been said that many life insurance agents are not renowned for their servicing of clients. So when we talk about servicing clients it’s a little bit off the track, it seems to me, because what is going to make an agent have some stake in this is; in other words, how much is it worth to me? What am I going to get out of it? That’s why policies are not serviced. There are many, many orphan policy holders. How are you going to deal with that issue of how much is it worth to you to deal in life settlements without becoming like the annuity commission hucksters?

BRYAN FREEMAN:I think this gives agents an incentive to work with their clients and to keep in touch with them and service them. You know, frankly the life insurance industry and the way it’s structured allow us to exist. As a matter of fact I would say they foster our existence. A number of years ago most carriers made the decision to put their products into the commodity marketplace. In other words they said, ‘We don’t want you as an agent. You need to go be an independent agent. We will manufacture product and we’ll be a commodity and you need to sell it for us.’ And of course, quickly they found out that agents went to the cheapest company and the best underwriting. So they began to redesign their products so that they could beat their competitor. I think everybody knows that most new life insurance that’s written is written because one carrier takes it from another one. So you’ve got to have a better product–a new mouse trap all the time. And frankly, because consumers have the ability to go buy new life insurance that’s better, more modern, efficient, up-to-date life insurance with more bells and whistles and guarantees, they are able to trade in an old model for a new one. And the insurance companies have created that.

RAMIRO RENCURRELL:And the commission that the agent or the broker might make on the settlement is an incentive just for that broker or that agent to stay in contact and service the customer. Now he’s going to stay with them because he knows he can make another commission down the road, another sale. It’s another opportunity.

ROB HAYNIE: Not to mention the commission on the new product that he offers.

STEVE PIONTEK: I would like to segue to another point. What will be your reaction when more insurance companies start to co-opt you like Phoenix, which just had a policy approved where they say they’ve got to have the first right of refusal on a settlement offer?

TED KILKUSKIE:Actually what it says is that if you shop the market and get an offer for your policy, Phoenix has to have the right to come in and beat that offer at the end. And what that does is devalue the policy up front. If you know you are going to bid on that policy and at the end it’s going to be swiped away by the insurance company, why get involved? So all of a sudden they’ve added a language which destroys the fair market value to clients. That’s number 1. Number 2, that being said, I think it’s great that they’re doing something like that. If there really is an intention there to increase value to the consumer at the heart of it, it’s going to be a consumer benefit. As long as it’s legal and as long as it doesn’t involve restraint of trade.

LARRY SIMON:When we saw it come out, one of the questions we posed to our attorneys is, do they need to be a settlement company to re-purchase the policy? And the answer I got was, “Yes, they need to be a licensed provider to re-purchase policies.”

TED KILKUSKIE:This is the exact language. It says, “If, however, you are offered consideration to transfer ownership of your policy or any interest in your policy including a collateral or absolute assignment to a third party, no such transfer of ownership shall take effect unless we or one of our affiliated companies first have the right to purchase your policy. We require evidence satisfactory to us of any consideration offered by such third party.” So who knows what the affiliated company might end up…

BRYAN FREEMAN: I think we’re finding that state regulators are beginning to look at those approvals they gave, that this has caused quite an uproar. And you know, it’s really a complicated issue. And I think you may have some unfair trade practices here. But at the very bottom of the whole debate it’s a great promotion tool for us as an industry that they’ve done that. It’s the greatest thing that could ever happen. It legitimizes our business for a lot of people. Because all of a sudden an insurance company is not putting out propaganda against us, but they’re saying we’re going to join in.

NATE EVANS: And in the final analysis, whether it’s an insurance company coming in and trying to buy their own policies or it’s an aggressive hedge fund or a pension fund, the market is a very efficient place. And so to the extent that Phoenix or any other carrier wants to get in, that’s fabulous. We’ve got more institutional players in the marketplace. They’re still going to have to compete in the marketplace.

LARRY SIMON:As long as it’s done properly and there is competition where it’s not “we have the last look,” we don’t mind insurance companies being in that business. But…

ROB HAYNIE:So long as it doesn’t impede the transfer taking longer. That’s an issue that we’re coming across now. Just transferring the policies is taking longer. Getting information out of the carriers on policies.

DAN BOCKHORN:I think the key language in that document is Phoenix or their affiliated companies. And if Phoenix goes out and contracts with just one company and so they’re only getting an overview of one offer, then that’s not a consumer friendly product. And so what we have to look at with the carriers is to make sure that they don’t write this language into their contracts and then become affiliated with one company, because that doesn’t give the consumer the opportunity to shop the whole market. That’s the fear of the companies writing that into their language because the key is affiliating companies. Who would that affiliated company be?

STEVE PIONTEK:Well isn’t there at least one person in here who works with an insurance company or has an insurance company affiliate?

BRYAN FREEMAN:Look guys, in reality the matter is that all of us who are entrepreneurs will one day want to sell our companies. And who will buy them? Life insurance companies.

LARRY SIMON:You know, the other side of this market is that you will see in the next 3 to 4 months rated term securitizations come to the marketplace. You’ll see the big investment banks in this marketplace. Nate, I think it’s public knowledge that Morgan Stanley has an interest in Maple Life. You’re going to see other deals like that happening. And these companies are pretty happy with the market and where it’s going. And as you say, it’s becoming more efficient.

STEVE PIONTEK:I’d like to give people a chance to talk 2 points with a 2-year time frame: What do you see as the biggest obstacle to your business or the business in the next couple of years and what you see as the greatest opportunity?

ROB HAYNIE: The biggest obstacle is the delivery which we as an industry properly educate about the opportunities that exist. The producers are aware. At least the ones in the high net worth, senior market. But it’s the others–the wirehouses, orphan policy holders, philanthropic opportunities, charities and so on and so forth. And other things that we won’t even be able to think about as we go around this room. The positive is, I’ve watched this marketplace since ’93 go from where it was and have every possible imaginable event happen that was going to terminate the industry. You had the viatical industry, then AIDS drugs came around and basically virtually overnight changed the dynamic. Out of that came a new emergence of an asset class which is now the life settlement marketplace.

This marketplace is going to be a considerable multiple of what it is now. I’d say the death benefit that we’ll collectively give this industry this year in 5 years will be something you might do in 2 or 3 weeks. Life settlement is going to be one of those words you are going to see on television, I would say inside of a year. Because it’s something that they’ve got to get behind and they’ve got to let the consumer know or they’re going to get sued–it’s a pretty easy lawsuit if you are representing the consumer that was wronged because the advisor didn’t educate properly.

LARRY SIMON:I think education is real, real critical. We need to educate the broker-dealers if that’s where the market is going to be, and we need to educate the agents. I think that’s the biggest thing we have to do. You know, in the 6 years we’ve been in this business, we’ve never had anybody come back to us and say, “We’re unhappy that we did this settlement.” And we’ve had no threats of litigation. And I think it’s because part of the education is that the beneficiaries are signing off, spouses are signing off. We are getting signoffs from doctors, attorneys, whatever, as to competency. So we are in some ways educating the seller’s family and beneficiaries to it. But we’ve got to educate, continue to educate the people selling the sellers.

DAN BOCKHORN:I think that what life settlements can do, if we educate people properly, is get agents out to that dormant client that hasn’t been serviced as opposed to going out as an agent and asking that client for more capital to invest or buy new products. If a planner has done his job, people in their 70s traditionally don’t need new planning. They just need service. Since there is no new product sale, that client doesn’t get serviced. So with our product the insurance companies could seize an opportunity to go out and ask their field force to say, “Hey, now we have a product that you can go out and service your client, ask for new business, without asking for new capital.” Our industry will provide the capital for that agent to service that client again.

The carriers are so focused in on their reserves and what their potential losses are that they don’t recognize the opportunity that we give them for profit. And I think that’s the biggest thing we need to do, is to educate the insurance carrier to the profit potential as opposed to focusing in on the loss. And the profit in the benefits to their clients. And that’s what we have to do a better job of.

JIM CAVOLI: Part of what the obstacle is is the attitude that there has to be a lot in it for me, which keeps the market small and somewhat inefficient because people are trying to make sure there’s something in it for them. I think the way you fix that is to make things easy to sell and so create more demand. If it’s easy to sell and there’s high demand, you don’t worry as much about what’s in it for me. It’s then about how many are in there for me?

What we need to do is change because our industry right now is a low demand. We keep talking about how much is out there and how little penetration there is. We need to release that demand. The opportunity that I see is for the business to become somewhat more standardized, which it’s really not at all, and to become a more efficient or easier, smoother, simpler, faster transaction. If we can do that, it will generate lots more interest from the advisors themselves. Right now, you have to go get the big kahunas to make it worth your while. You’re going to spend a year going around with this thing, generally. By the time you start selling your client to when you get paid, it’s easily starting to run a year. And if you can streamline that process and make this something that can be done more standardized and more quickly and more efficiently, then the opportunities are all going to be there.

LARRY SIMON:Although it will never be an Internet buy.

JIM CAVOLI:No, it’s much more like selling a business, right? I mean everyone is kind of unique. They’ve got to be underwritten and reviewed. I’m not saying that buyers need to stop doing the work that they do. I think most of the stuff that hangs up these sells is on the seller’s side. There are 15,000 guys trying to horn in on the one good deal that’s out there. There is a lot of inefficiency in bringing product to market and in working with the providers. There is some inefficiency with providers with the multiple funding sources. We need to find some ways of streamlining checking with different funding sources. I wouldn’t say you shouldn’t underwrite product and just come up with a standard price. But until this gets more streamlined, I think that’s what’s holding the volume back. It’s just too hard to do transactions.

ROB HAYNIE:As far as the market being efficient, I think that will work it out on its own. All markets do that. They become more efficient as more sophisticated capital comes in. But having said that, I think that to touch on your point, that will happen. We’re going to go ahead and make life insurance more valuable and here is how we’re going to do it. We’re going to create another reason why you buy life insurance in the first place. Because now you have an opportunity if circumstances change. And none of us have even talked about what happens if tax laws change. There could be a whole lot of life insurance that is of no value anymore if they do some things in Washington. So there is a market increase right there.

JIM CAVOLI: It’s got to be a transparent, simple transaction. It can involve underwriting life insurance as everything else should. But it shouldn’t be as opaque as it is. The reason it’s hard to understand is because everybody is out telling the same advisors our angle or whatever it is on the marketplace. And I’m not sure–I don’t know if you get inundated with so much information that you can’t make sense of it and maybe that’s the problem. Because we’re all calling on the same guys and we’re all telling them what we tell them. And I’m trying to be different from you and you from me. And the problem is the transaction is not different.

BRYAN FREEMAN:The concept is simple. The execution, as in most things in life, is more complicated. It is much more complex than the underwriting for the issuance of a life insurance policy in the primary market. Why? Because you are not only underwriting health, you are underwriting the policy and its premiums. The ownership structure, whether it’s owned by a trust or a business, whether they have the right to sell it or not. Does it have a lien on it? Is there a lien by divorce on it? Then you are looking to make sure it’s a regulated transaction. What do we have to file with those states? And so it’s a lot more complex and has more pieces to it than the actual underwriting for the life insurance policy issuance in the first place. So you can’t sidestep that because if you do, you will have regulatory problems. Your funds will not do as they hoped to do. So it is complex. At least from the provider side in doing the underwriting for the transaction. And it’s labor intensive.

SCOTT PAGE: Within the next 2 years, life settlements will be a mainstream consumer product and a recognized profitable and viable financial planning option for the appropriate people.

Institutional funding will continue to dominate the industry, move it forward. More domestic fund sources, by way of hedge funds, etc. will enter the market at an increased rate.

We should also see increased uniformity across state-specific legislative and regulatory initiatives as various groups show a real interest in the life settlement industry, coordinate with each other to a greater extent and give birth to model legislation and other common regulatory points of interest.

BRENT BUSH: I think education is the major hurdle facing the industry. But I think overall we’re making little baby steps. And we’re going forward and we’re going to see some of the results of that over the next couple of years. I think we’re going to have more players in the industry. If you called the top 20% of the players next time around, you’ll probably have a table that’s twice or three times as big as this. And the reason for that is there is much more institutional money coming in, to legitimize the industry itself as well. It’s not me selling my policy to Ramiro. That’s not what’s happening. Those days are pretty well gone, it’s now institutional money that it’s coming from very, very legitimate sources. And I think that’s going to add credibility to the industry and make it much larger. And the insurance companies are going to have to pay attention to it.

CRAIG SEITEL:Yeah, I would agree to that. Our biggest challenge is creating awareness as quickly as we can. That’s going to help promote proper regulation. Our biggest positive in the future is going to be validating a liquid market for the consumer.

LARRY SIMON: Now the issues are more how do we educate the consumer, the agent? There was a recent study that basically said 13% of the agents have done a life settlement transaction. That’s a very, very low number. So either they don’t have the clients or they are not educated enough to feel comfortable doing the transaction. Again, that’s our problem.

STEVE WASHINGTON:We’re in the early stages of being a regulated industry. And there are probably opportunities that we haven’t yet even come across, new products that may become available for consumers. New products that ultimately as well will become available for institutional investors. We’ll get more institutional investors involved in the market. I think right now it’s still looked at by some institutional investors as a very exotic investment, a high risk investment. But I think as the market matures, it will become a very established, separate class of investment. Particularly as we develop a longer track record of life expectancies and it’s projected versus an actual result that will improve over time. That will bring more investors in. But I think we have to improve disclosures for consumers. Currently they get a lot of disclosure in connection with doing life settlements. But I think on the carrier side we can improve disclosures too.

Another aspect of that we have to deal with is carrier resistance. I mean if I were in the carriers’ shoes, I’d be trying to figure out a way to get into this market or somehow taking advantage of the opportunity. I think it’s really all those things combined and we’ll eventually get there. But we’re at the very early stages. And ultimately I think it will become a mature market just like mutual funds became. Just like other small regulated industries. They start out as little tiny niche and ultimately blossom.

TED KILKUSKIE:Over the next 2 years the biggest threat I see to the industry is ham-fisted legislation and regulation. And that would include whatever the carriers do. I think some of what they are doing is well-intentioned but misguided. I think some is not so well-intentioned. So that’s the biggest threat. I think the biggest opportunity is that it’s a severely underserved market. Especially when you look at the benefits to the consumers, to the trusted advisors. So I think education, but education with full disclosure. I think that a lot of times there hasn’t been enough light shed on disclosure especially as the market evolves in new products. I think there is going to be new applications of the secondary market that are going to benefit consumers that are being thought of right now but will be put into play over the next couple of years. And again, that’s going to require its own set of education.

BRYAN FREEMAN:I almost feel like I just want to say “Amen.” You know really what I think the obstacle is, is regulator and legislator education. Because in the next 2 years they are going to be bombarded by propaganda, and you can underline the word propaganda. That’s what it is. From the insurance companies that misstate our business, misstate the benefits of our business. And so I’m concerned that somebody somewhere might believe what they are hearing. So that’s an obstacle. Opportunities are that I think you are going to see the complexity of our business change because of purchases of companies and new entries into the business. There is at this point, quite a hurdle for new people to overcome because of licensure and because you need to be licensed in over half the states if you are going to do business there. So you’ve got a lot of opportunity, big growth ahead and furthermore, all of us baby boomers are about to get to the age where we need to sell our policies. So as that happens there is going to be a lot of policies for sell.

NATE EVANS: I agree with so many of the comments but I think the 2 biggest things as far as challenges from my perspective are regulation and legislation. And I think it’s going to be the challenge to make sure the proverbial baby doesn’t get tossed out with the bathwater. And the other challenge is going to be to clearly define for the regulators the difference between kind of mainstream life settlements and the fringe players that are doing things, kind of pushing beyond good sense to be kind. And then 2 years from now, I agree there will be more players and larger players. And when you look back a number of years, mutual funds and annuities were things that really had to be explained to people. And today they are just commonplace household terms. And I think 2 years from now, that will be how life settlements are viewed as well.


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