MIAMI–A life settlement broker talked here at the Life Settlement Summit about several consumer-focused reforms the industry might consider.
Cynthia Poveda, vice president of Crump Secondary Markets, noted that states regulating life settlements could encompass about 90% of the U.S. population by the end of this year. Typical state requirements for settlements include disclosures to sellers of compensation paid and bids received, provisions assuring sellers’ rights to rescind agreements within a specific time and bans on stranger-originated life insurance.
Much of the regulation seen is well-intended but can have unintended consequences, said Poveda, whose company is a unit of Crump Life Insurance Services, Cleveland. For instance, legitimate policies that had been premium financed could be seen as STOLI under some states’ definition of that term, she observed.
“Lost in all that is the consumer,” she said, arguing that state laws can impose excessive limitations on consumers’ right to dispose of their property as they wish.
Life settlements “may not be right for everyone,” she said. “But people should have a choice.”
Consumers do need protection of their confidential medical information, she said. She warned that this can be jeopardized in the bid solicitation process. As information on applicants for a settlement is distributed, brokers must take care to use secure, preferably encrypted case files.
Who constitutes an eligible buyer is another area needing attention, Poveda said. “Who are they?” she asked. “What are they doing with the information? You need to deal with licensed brokers.”
Poveda also maintained that there are too many intermediaries in the market, between agents, brokers, providers and funders. Some brokers find they are dealing with a funder who won’t even disclose who his client is, she noted.
“There is a need for a single intermediary” in the life settlement process, she said. A single intermediary –rather than a slew of agents, brokers, providers and funders — would operate at a lower cost, she said.
“It’s something to think about,” she said. “Whether the regulatory environment can be moved in that direction remains to be seen.”
Another problem she cited was too many reviews of cases by different parties, which can make the settlement process seem endless.
She cited one settlement she handled that seemed ready to be concluded when one funder’s representative found a hitch: The policy seller had apparently concealed a medical condition from the insurer. The concern was that the carrier that issued the policy might use that fact to challenge any settlement in the event of the insured’s death.
It turned out, however, that the doctor had misdiagnosed an ailment, a fact that was not recorded in the policy owner’s medical record.
Poveda said she would also like to see the buyer assume some of the financial risk of a settlement deal failing to close. She proposed that some type of “earnest money” be put up by the potential buyer, to be held in escrow, similar to money a prospective home buyer loses if he walks away from a deal at the last moment.
“I think earnest money would keep the funding source interested and remove some delays” in life settlements, Poveda said.
The Life Settlement Summit was sponsored by National Underwriter Life & Health and other Summit Business Media publications.