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Regs Hit Secondary Market

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New legal and regulatory restrictions are prompting many life settlement companies to pull out of one or more states.

An online survey of life settlement companies found that 43% have stopped doing business in one or more states.

Half of the companies that have stopped doing business in at least one state cited bonding requirements or other licensing provisions as the reason for pulling out, according to the Life Insurance Settlement Association, Orlando, Fla., which conducted the survey.

Settlement firms most often cited North Dakota, West Virginia and Vermont as states they have left due to concerns about laws and regulations.

All 3 states have restricted use of settlements during the first 5 years after a life insurance policy is purchased.

North Dakota and West Virginia both require life settlement providers to carry a surety bond, LISA notes.

Starting Oct. 1, Vermont will prohibit brokers from earning more than 2% of the amount paid by a life settlement company to the policy owner.

Asked about the biggest threats facing the industry, 47% of survey respondents cited a lack of capital; 16%, “unreliable mortality estimates,” 11%, “negative media reports,” 10%, “fraudulent activity by industry actors”; and 9%, a “negative state regulatory environment.”

Other survey findings:

- About 71% of survey participants agreed that the value they bring to a transaction should be foremost in determining the amount of commission that a life settlement broker receives on a deal.

- 52% predicted that “regulatory controls” would be the next major challenge facing the life settlement industry as it grows.

- 82% cited “lack of basic awareness of the option” as the top reason why more consumers do not choose the settlement option; 13% cited the belief that “economics do not work for particular situations” as the main reason.

LISA generated the survey results by polling its 117 members and the readers of its Life Settlement Review publication.

About 40% said serving as a broker was their primary line of business.

Other participants said they were involved in the life settlement market as industry services providers (15%), financial entities (14%), providers (12%), producers (10%), legal services providers (4%), and life expectancy or actuarial services providers (4%).