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Life settlements in the Ivy League

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Lauren Cohen is a young guy — too young, it seems, to have the track record he does. A former Yale and UPenn professor, he’s now an associate professor in the finance arena at Harvard, where he’s tackling life settlements in one of his Harvard Business School classes. 

In addition to a few other schools around the country, HBS uses the case method for teaching, which, according to Harvard, “is a profound educational innovation that presents the greatest challenges confronting leading companies, nonprofits, and government organizations — complete with the constraints and incomplete information found in real business issues — and places the student in the role of the decision maker.” For students, Cohen admits, it’s one of the scariest parts of the HBS experience.

Cohen used the case method during a session at Monday’s LISA conference in New York, asking the 150+ in attendance about the current state of the life settlement industry. The responses, as expected, varied greatly:

  • The life settlement industry will be a $35 billion business in 10 years;
  • It’s not about how many buy, it’s about the system of originations. It will remain a niche market;
  • We’ve weathered a huge storm. The biggest problem we have now is not enough successful investors to point. There are too few examples of people who have successfully gotten into this industry. What we need to do is focus on successful investor stories;
  • Who has the power? The policyholder, the investor or the provider? Investors do.

Cohen also posed the question of what, exactly, will bolster the industry — will it be focusing on writing small policies or large policies?

Panelists Alan Buerger, CEO and co-founder of Coventry, and Gary Brown, CEO of CMG Life Services, took sides.

“The only thing you hear in our business is how many policies were bought, who bought and sold them, and who was indicted,” said Brown. “You manage life extension risk by writing better policies. The sweet spot for investors is the $5 million and up policies. But we also have to deal with headline risk.”

“The articles written about our industry today have gone from 100 percent negative to mostly postive,” said Buerger. “It’s a needs-based business and we provide enormous value to families who wouldn’t have gotten aid from their insurance company alone. Positive news will make investors more interested. But we have to streamline the underwriting process. In all, I see growth of 15 to 25 percent a year, with the driver being legislation and positive media.”

Cohen summed up the current and future state of the industry by reminding those in attendance that there are still market failures in today’s developed markets. New markets require new expertise, even if new markets look a lot like other, older markets.

“There are new types of fraud, new types of risk — like idiosyncratic vs. systematic,” Cohen said. “The key to unlocking value in new markets often does not stem from intrinsic value but the ability to successfully compel investors to commit patient capital toward it.”  


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