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Life Settlement Pioneer Sees a Bright Future Ahead

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What You Need to Know

  • Life insurers are offering extra cash to encourage policyholders to drop some policies.
  • The Life Insurance Settlement Association sees that as a concern.
  • But Buerger says the overall policy supply and investor interest look good.

Low interest rates have hurt the profitability of older life insurance policies that insurers sold when rates were higher.

Some insurers are offering the policyholders “enhanced surrender value” options — cash — in an effort to get them to drop the policies.

The Life Insurance Settlement Association sees that as a kind of unlicensed settlement offer: It put a session on “defending the life settlement industry” on the agenda for its 27th annual conference, which ended Tuesday. The session focused on the enhanced cash surrender offers.

“These activities encroach on the regulatory frameworks that define the life settlement market,” LISA said in the description of the defense conference session. “LISA is actively engaged in efforts to mitigate this encroachment.”

But Alan Buerger, the chairman and co-founder of Coventry, said recently that he’s optimistic about the future of the life insurance policy resale market he helped create.

“The market is robust,” Buerger said. “I think this will continue for a long time.”

Reasons for Optimism

Buerger said that the supply of policies suitable for the life settlement continues to look strong and that plenty of institutional investors are interested in blocks of life settlement business, which tend to be resistant to ups and downs in stock prices and interest rates.

He also sees opportunities for life settlement firms like Coventry to cross-sell other products and services to life settlement candidates.

The main obstacle Buerger sees continues to be the difficulty of educating agents and consumers about the existence of life settlement options.

Some agents have concerns about efforts by companies like Coventry to advertise directly to consumers, and to buy policies directly with consumers. Buerger said Coventry began using the direct-to-consumer approach out of necessity, even though it would prefer to work with policyholders who have help from agents or advisors.

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At Coventry, he said, a typical case involves a husband and a wife who are about 75.

“They’re an orphan,” Buerger said. “They don’t have an active agent.”

But someone has to let them know they have an alternative to letting an unwanted policy lapse, Buerger said.

Life Insurance Industry Changes

One trend Buerger has noticed is that most life insurers are “less aggressively oppositional” than they were when he started.

Another trend he has seen is the difficulty life insurers have with administering the business they have sold: Because of the use of old, outdated computers, many insurers have trouble telling Coventry what they believe life insurance policies say.

“The carrier is in the business of collecting premiums, not necessarily of paying claims,” Buerger said.

Buerger has also watched private equity firms buy life insurers and invest in life settlements.

“I think they’ll make insurance a better investment,” Buerger said.

Private equity firms will help the industry by upgrading technology and improving life insurance company portfolio investment returns, he predicted.

Alan Buerger (Photo: Allison Bell/ALM)