Credit market turmoil is having a substantial effect on the life insurance premium finance market, but quality deals continue to get done and the turmoil should be seen merely as a “pause” for a growing industry.
That is the view of Ronnie Katz, president of Finance for Life, a premium finance company based in Memphis.
Specifically, Katz said that as many as six lenders have lost their funding sources or run into delays in receiving funding.
Scott Cipinko, the executive director of the Life Insurance Finance Association, an industry trade group, said one reason for the turmoil is that potential lenders want to see how the market is going to be regulated in the future before they make any investment in funding new policies.
Besides the general credit market turmoil that reached its peak with the need to bail out Bear Stearns by JP Morgan Chase and the Federal Reserve Board last month, Katz said the declining dollar is causing foreign investors to rethink their commitment to U.S. markets.
The growing caution of hedge funds, a primary source of funding, to commit funds to the market, is also a primary source of the funding problem, Katz added.
The turmoil is also creating greater emphasis on due diligence on deals as well as the agent bringing the deal to the broker, he said.
“We are doing greater due diligence of the agents and advisors who bring deals to us,” he said. “We are now checking criminal histories and reviewing insurance licensing records for the agents who bring us the business to ensure we are dealing with credible people.”
This is becoming an industry-wide trend, he said.
Cipinko said another of the problems the premium finance industry is running into is what he calls the “stigma” attached to efforts by life insurance companies to lobby state legislatures to outlaw stranger-originated life insurance (STOLI).
“The campaign against STOLI is painting any premium finance program as a potential STOLI deal,” Cipinko said. “This has had a chilling effect on the market–to the detriment of the consumer.”
Specifically, he said, “Legislators and regulators have been told that life insurance premium finance can lead to STOLI, but life insurance premium finance has been around a lot longer than STOLI, and even the secondary market.”