Kaye: Life Settlements Allow Life Insurance To Become A 'True Asset'

Consumers interested in life settlements, he said, are typically sophisticated consumers, and many of the steps being taken by life insurers to stem life settlements or investor originated life insurance, such as by asking questions about the applicant’s intent or financing, would in fact have the opposite affect of raising the option in a consumer’s mind.

“All of these questions would trigger a question from any intelligent client as to what those questions are referring to,” Kaye said.

In addition, he also took aim at another argument often made, that consumers are harmed more than helped in settlements due to the high fees and commissions involved. Kaye countered that the benefits to consumers, in a transparent transaction, are clear. “The fact that agents profit from this market does not diminish this benefit for the consumers,” he said.

What that means for insurers, he said, is that they will have to adjust to a world where life settlements are part of the market, and make the changes they need to make in terms of pricing and lapse ratios.

“Why not build life policies that are meant to last and not to lapse,” he said. “Is it really so difficult to change the lapse ratios and accurately price the product?”

Kaye argued that life insurers have mounted their opposition because they failed to make these changes early in the development of the industry, which would have allowed them to dominate the secondary market. Going forward, he said life companies should “stand strong” with the secondary market rather than trying to “kill” it “because they missed the boat and didn’t take over this new industry.”

Another area in which life settlements have been an important development is in the world of charitable giving, Kaye noted, and he himself has donated heavily to Florida Atlantic University. “The life settlement industry and charity go hand in hand,” he said, noting one of the aspects of life policies that also make them attractive to investors, their independence from other market factors. Life policies, he said, maintain a constant value in terms of death benefit. “Real estate and stocks can go up and down,” he said.