One of the requirements for disclosure in many life settlement regulatory systems is telling a seller that “a stranger will own your life insurance” which raises the concern that a stranger will hold not only the policy, but all of the personal information that went into it.
However, those who bring policies to the market say there are significant protections in place to ensure that access to a policyholder’s information is kept as limited as possible, and that the fears of an insured’s private medical information falling into the wrong hands are largely unfounded.
Among the most fundamental legal protections for safeguarding personal information are the federal requirements established by the Health Insurance Portability and Accountability Act, or HIPAA.
“We’re required to keep everything confidential,” said Ronnie Katz, founder of Memphis-based Settlements for Life, adding that life settlement transactions are required to include disclosure notices and waivers for information sharing. “It’s just as you’d see in a doctor’s office.”
There is a fair amount of personal information involved in a life settlement transaction, Katz noted, adding that this generally involves demographic information, such as the policyholder’s name and address. But, this will also include confidential information such as the Social Security number and birth date of the policyholder. “In most cases they will see the demographic,” he said.
Harry Beck, executive vice president at San Francisco-based Provada Insurance Services Inc. argued that given the equal requirements on both types of transactions, a life settlement is no different in terms of privacy than the purchase of a life insurance policy from an insurer.
“The ‘lack of privacy argument’ in a life settlement is fallacious because the process is similar to purchasing life insurance,” he said, adding that the same release forms and mortality determinations are required for both. “A good life insurance broker is no different that a good life settlement broker since both will ‘shop’ the policy to get the ‘best price’ for their client.”
Stuart Hersch, a managing director at Cantor Life Markets, said that in states where life settlements are regulated, the buyer is entitled to see the full file of the policyholder. “Once the trade happens, the provider gets the complete files with the names in it because that’s required by law,” he said.
Even there, however, Beck noted that the ultimate source of the funding may not be seeing the information. “Most funders use an escrow agent, often times Well Fargo, that acts as a buffer between the funding source and the insured,” he said.
Furthermore, Beck argued that most funders of life settlements are not interested in the specific people whose policies they are buying.
“Funders know they are investing in an asset class–life settlements–that will pay them a reasonable but uneven return over a number of years,” he explained. “Their main concern is that the rate of return assumption of the investment pool, which is usually 200 times larger than the average policy size, is met.”
In fact, Beck said, the buyers in a life settlement have only one need–to know who the insured is–so they can file a claim when the time comes to do so, and even that process is typically done separately.