The life insurance secondary market will start expanding again soon, a new study concludes.

2009 was the first year of contraction for the LISM after 15 straight years of expansion, notes Paul Siegert, president of the Insurance Studies Institute, Keystone, Colo., which conducted the study.

“We expect that with this next wave of expansion, the LISM will become more sophisticated and create valuable investment structures,” Siegert wrote in a commentary on the study. “We expect the LISM will continue to demand higher standards, fairer laws, consumer protections and consumer notifications. Investors will return. The life insurance secondary market is here to stay and will continue to provide a valuable option to seniors who do not want or need their life insurance policies.”

The decrease in sales started with the capital markets tumult in 2008, creating a buyers’ market and falling policy prices, the study notes. The slower market and lower policy prices reduced commissions to brokers and agents, causing many to step away from the LISM.

ISI’s survey of investors, providers and brokers indicates that they expect sales volumes will return to the 2008 levels by the fourth quarter of 2010.

“This growth will be fueled by investor demand, leading to increased competition for policies and higher prices paid to sellers,” the survey report says. “Agents and brokers who act early to focus their business models on the LISM and bring policies to market will be in position to benefit their clients without delay and to earn commissions that otherwise may be lost to lapsed and surrendered policies.”

The report also indicated that the International Life Settlement Trade Mission recently concluded by the Life Insurance Settlement Association, Orlando, and the European Life Settlement Association attracted mostly investors at the $10-million level, not the $100-million level the industry needs.

Among other trends noted by the study:

–The number of provider firms has shrunk;

–Policy flow is down because producers have temporarily left the business to sell insurance instead of finding settlements;

–Longer life expectancies and a shortage of capital are driving investment return rates high;

–There is some reluctance in the industry to encourage producers to generate insurance policies for settlement when buyers are not there.