The continued growth and development of the secondary market for life insurance policies may mean that fewer and fewer companies play a major role in the life settlement industry, according some experts.
“This industry is going to evolve into a handful of very large companies, and a lot of smaller companies that specialize in different areas,” predicted Coventry chief executive officer Alan Buerger at the recent Life Insurance Settlement Association conference in Washington.
Buerger added that he believed consolidation was especially likely given the “disruptive” nature of the life settlements industry in terms of the former status quo dominated by life carriers and the fact that the life settlements industry itself is still maturing. “We see tremendous consolidation in all kinds of industries, but for young, disruptive industries especially,” said the CEO of Coventry, Fort Washington, Pa. “Everybody wants to disintermediate everybody else, and that’s how it should be.”
Scott Wilkomm, CEO of mortality-linked products for JG Wentworth, Bryn Mawr, Pa., also agreed with Buerger, and said the industry would take on a “barbell structure” of smaller companies operating around the larger players, but he argued that the change will not necessarily mean disintermediation. “There is a role for intermediaries,” he said.
Mark Freitag, an associate with the Atlanta office of the law firm of Locke, Lord, Bissell & Liddell, LLP also saw an increasing sophistication of the industry as it matures, which he said has only attracted new players. “We’re bringing in more people into the industry as it grows,” he said, with more producers bringing in policies, more providers and more service companies.
He agreed with Buerger, however, that those coming in, and those already present in the marketplace are trying to take as much control of the process as possible. “People are trying harder and harder to learn more aspects of the business,” and address those parts of a transaction themselves.
In order to disintermediate the industry, Buerger said that each party is going to have to develop the systems needed to allow them to operate in the different areas of the secondary market.
“For all of these things you need a real infrastructure,” he said. In fact, Buerger argued that companies may need to broaden how they define themselves to include not only life settlements, but other financial instruments such as the developing market for “synthetic” life settlements that allow for an investment based on the performance of a pool of life policies without an actual transfer of the ownership. “We need to think about how we define ourselves, what business are we in?” he said, adding that Coventry sees itself not as a life settlement firm, but as a “bridge to the capital markets” enabling clients to deal with their long-term needs. “Innovation will come based on how you define yourself,” he said.
As the infrastructure of the secondary market develops and matures, Buerger said the regulation of the life settlement industry will become increasingly sophisticated as well. Companies are going to need many people in the compliance office,” he predicted.
Wilkomm said that another of the changes that will have to occur in the secondary market will be a move from dealing only with the “sliver” of the population that are high net worth individuals to a more “democratic” market as the senior population booms over the next decade. Many policies held by seniors are “orphaned” due to their agents retiring or for other reasons, and Wilkomm said figuring out how to service those policies would be one of the areas where intermediaries will be able to find their niche.
“Few of those seniors are high net-worth individuals,” he said. “There’s a big opportunity out there.”