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Life Health > Life Insurance

The Advisor's Role In Getting The Word Out On Settlements

By Matt Brady

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Advisors in life settlement transactions continue to work with their clients and conduct their transactions despite the heated debate surrounding the market.

Even so, with some in the industry sounding the alarm about the negative image being given to settlements by certain regulators, such advisors are asking what role can they play in “spreading the message” about settlement attributes.

For Bob Nelson, vice president of financial and estate planning for Grace/Mayer Insurance Agency Inc., Omaha, Neb., much of that work should involve showing what the life settlement industry truly is.

“It is an industry that has evolved into one of respect” and is fundamentally based on being consumer friendly, he said. “I don’t think anyone I respect in this business is in predatory mode,” nor are they preying on seniors with unscrupulous transactions, he added.

The big problem facing life settlements, he said, is the difficulty, in some corners, in differentiating between actual legitimate life settlements transactions and what Nelson referred to as “marketing schemes” that fall under the category of stranger- or investor-originated life insurance.

“That’s the challenge the regulators are facing,” he said.

As an emerging industry, one of the major challenges facing life settlements is establishing its identity and avoiding being cast in a negative light.

Regulators and other policymakers continue to work towards eliminating some questionable insurance transactions, primarily involving stranger-originated life insurance known as STOLI. However, many in the life settlements industry feel that some of the proposed solutions fail to address the root of the problem and would also significantly damage the market for legitimate life settlement transactions.

Among the most contentious regulatory concerns for life settlements is the proposed Viatical Model Act update being considered by the National Association of Insurance Commissioners, Kansas City, Mo. Some in the settlements industry feel this proposed change would, in the name of rooting out STOLI transactions, unfairly limit the ability of consumers to sell their policies.

The NAIC proposal “walks around” STOLI issues and unfairly targets life settlements, said Ramiro Rencurrell, director of life settlements at Magna Administrative Services Inc., Coral Gables, Fla., and president of the board of directors for the Life Insurance Settlement Association, Orlando, Fla., during a recent roundtable discussion. The roundtable was sponsored by National Underwriter Life & Health.

Other speakers at the roundtable also said they were not given the chance to make arguments against the model act update.

Nelson, of the Omaha agency, is a past president of the National Association of Insurance and Financial Advisors, Falls Church, Va., and has provided testimony to and worked with regulators and the NAIC. Although not heavily involved in the current debate, he said he believes regulators have generally been “well intended” in their work together. It is an “unfair assessment” to assume they would shut out the life settlement industry from the debate, he said.

Based on his experience, Nelson said he believes the life settlement industry should and will get a chance to make its case as the proceedings go forward.

“Of course there’s a difference of opinion,” he said, “but the regulators, and the people in this industry, are smart enough to present their case.”

The settlements debate is especially charged, he noted, because “there’s just so much passion” on both sides of the issue.

Aside from looking at the regulators, Nelson said those in the life settlement industry must also ensure that they maintain high standards. “There’s not a right way to do a wrong thing,” he said.

“If a life settlements company, because of pressure on their bottom line, starts to buy into some of these marketing schemes,” he said, it could become a bellwether for the industry as a whole. “That would cause the regulators to overreact, and the whole business could implode” and deprive consumers of a viable option.

“It’s incumbent upon every piece of the supply chain,” he said, including advisors, life settlement companies and investors, “to have ethical issues at the top of their mind.”

Speakers at the roundtable added that many of the agents and advisors involved in life settlements are also members of organizations such as NAIFA. They questioned whether the leadership of those organizations is reflecting the will of their members on life settlements issues.

Although he’s a past president, Nelson said the current leadership at NAIFA does not have the same view of life settlements as he does. “They respect my position, but they don’t agree with it,” he said. However, he said the group’s legal department has been active on the issue and that he is satisfied with what they have been doing.

As an industry, Nelson said he believes those involved with life settlements need to make it known that settlements are a consumer-friendly option for those who either no longer need, want or can afford their life insurance policy. “That’s what we’re about,” he said. “That’s the message that needs to be clarified.”

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