The inevitable impact of increased state regulation of life insurance settlements will be a shakeout in the industry, says Alan Buerger, CEO of Coventry First L.L.C., Fort Washington, Pa.

Compliance is expensive, Buerger points out. “We have eight people in compliance,” he says. “A lot of companies cannot afford that.”

With most states regulating the life insurance settlement market, 85% of the U.S. population now lives in regulated states, Buerger points out.

He sees increased regulation as part of the normal evolution of the industry. He believes it will lead to more settlement firms specializing in doing business in limited regions of the country rather than nationally because the cost of doing business on a national scale will be prohibitive for most settlement providers. One result will be fewer national settlement providers and more regional firms.

Also rising in importance for the industry as a whole is the tertiary market, where settlements are packaged into investments, Buerger says. He points to the commitment in October of $100 million by the Oregon Investment Council, overseer of the Oregon Public Employees Retirement Fund, of $100 million with Apollo Global Management L.L.C., New York, to participate in a package of life insurance policies Apollo had purchased from a Belgian bank. (The policies became available at what was considered bargain prices because the bank was eager to get out of the life settlement market, according to press reports at the time.)

As for Coventry, Buerger says it now underwrites about 60,000 lives. A growing part of its business is its SWAPP (Settlement With a Paid-Up Policy) program. With SWAPP, individuals can trade an existing life insurance policy for one with a smaller face value. The idea behind SWAPP is to let individuals keep their life insurance without having to pay premiums, he says.

SWAPP plans are now about 40% of Coventry’s sales, up from about 7% three years ago, Buerger says.