The Deal, a business intelligence and news service, recently wrote in their publication, The Life Settlement Report, that the life settlement industry saw substantial growth 2018. Their research showed a 28% increase in policies sold, to 2,587 last year, from 2,027, and an even larger 35% increase in volume by face amount. Face amount increased by about $1 billion, to $3.8 billion. The Deal’s data was based mainly on reviews of information from state insurance departments, obtained through public records requests.
The volume growth can be attributed to a variety of factors. There is a continuing increase in the number of potential life settlement policies, as the oldest baby-boomers are reaching age 73, bringing them closer to the sweet spot for life settlements. Investor rate-of-return expectations may have softened slightly, which makes more policies eligible for life settlement offers. Finally, there appears to be some increase in awareness of the life settlement option through consumer-direct advertising.
The Deal’s review of where the additional life settlement business is going reveals, however, that all segments of the industry are not sharing equally in the growth. It appears that most of the increase in volume is going to the consumer-direct segment of the market — life settlement providers who are buying policies on behalf of their investors, directly from the policyholders. Financial advisors are, for the most part, missing out on the industry’s growth, because, apparently, they are not adequately serving their clients’ life settlement needs. As a result, clients are increasingly going direct to life settlement buyers.
The growth of the life settlement industry is, overall, a positive trend for consumers, giving them an alternative to accepting an insurance company’s cash surrender value, if any, when they lapse or surrender a policy. However, the swing toward consumer-direct transactions is unfortunate. This trend is likely a lose/lose proposition for both the consumer and producer.
Life settlement offers are usually maximized only when competitive bidding for policies takes place. That is often not the case when the consumer goes direct and gets, perhaps, only one quote. Remember: A provider’s job is to buy the policy for as little as possible. The broker’s job is to sell the policy for as much as possible. That puts the provider and the broker on opposite sides of the table! Producers, typically, can generate better offers by seeking competitive bids through brokers and be fairly compensated for their efforts.