Life settlement firms face special challenges when assessing the life expectancies of the insureds.
Medical directors for life settlement underwriting firms talked about those challenges here during a panel discussion at the Life Settlement Summit.
The event was sponsored by National Underwriter and its parent company, Summit Business Media L.L.C., New York.
Unlike life insurance companies, settlement firms cannot base underwriting decisions on the results of medical testing ordered for applicants, the underwriters said.
Life settlement firms rely mainly on what’s already on the record in medical tests and attending physician statements, and they are working with what on average is an older population, the underwriters said.
“Underwriters are not comfortable doing that,” said Linda Goodwin, medical director with Examination Management Services Inc., Scottsdale, Ariz.
Settlement underwriters have a limited idea of what their competitors are doing, because their statistics are based on the experience of an industry that is still young, said Charlotte Reed, medical director at 21st Services L.L.C., Minneapolis.
“Life insurers are much more communicative about what kind of life expectancies are generated by their data,” Reed said.
Although all major settlement underwriting firms recently increased their projected life expectancies, each one based its expectancy table on its own business model, said John Iacovino, medical director at Fasano Associates, Washington.
At least, he said, “regulators can’t say we’re price-fixing.”
A significant difference between settlement firms and life insurers is that carriers have a financial stake in the policies they issue, Fasano said.
“In life settlements, aggregators and intermediaries are not the funders,” Fasano said. “That produces larger disparities of opinion, where brokers often say estimated life expectancies are too long. That can create a bias toward being too short.”
Iacovino said it is not possible to avoid some subjectivity in creating a life expectancy table for life settlements.
Goodwin said the mortality risk information used by the industry is based on information gathered in clinical settings, which is tricky to apply to a population made up of insured individuals who are trying to sell their policies.
Although life settlement firms cannot order medical testing, certain results can be especially enlightening when those results are available, the medical directors said.
Goodwin likes treadmill tests as an indicator of overall health.
Lee said she looks at whether the applicant is thinking independently.
“Is someone else doing the thinking for them?” she asked. “I like to have some idea of the individual’s cognitive functioning.”
Similarly, the number of activities of daily living the individual can perform independently offers strong clues to longevity, she said.
Fasano said he likes to see results of memory recall tests. “They can have big ramifications for life expectancy,” he said.
Unlike those applying for life insurance, the settlement applicant is trying to convince underwriters that the applicant will have a short life, Goodwin warned. For that reason, she said, she is unlikely to pay much attention to cognitive-screening tests done close to the time of the settlement application.
Iacovino said he looks at evidence of the individual’s vitality and strength when he evaluates a policy. For example, he said, “Does she go on cruises? Does he take Viagra?”
All 3 directors said their companies are building databases showing projected versus actual mortality for all cases, in the hope of predicting the effects of specific underwriting factors more accurately.
“The problem is, it’s a young industry,” Lee said. “As the data [set] gets larger, we can get more accurate”.