The Insurance Advocate has followed developments in the Life Settlement field over the past few years, in particular the New York legislation – see this issue. The leadership work of Doug Head who has organized L.I.S.A. was on view this month in New York City as L.I.S.A. held its Annual Meeting at the Marriott Marquis Hotel. The event is generally considered one of the premier Life Settlement events in the country.
This is a relatively volatile field by contrast to property casualty insurance and others and has taken regulators by surprise at several different junctures. Here we pose to Mr. Head several questions looking ahead at the future of Life Settlements.
Q The Life Settlement industry has come under increased regulatory scrutiny. Where do you think this will windup: hybrid regulation (that is, State and Federal) or Federal, and will the regulations slow down the market?
A I do believe that there will continue to be bifurcation of the regulatory process. State’s will regulate Secondary Market Insurance Transactions as the “business of insurance”, including viatical and life settlements and the possible settlement of annuities. The Congress has made it clear, in recent discussions of the Consumer Financial Protection Agency. They will not move to regulate insurance in the near future.
On the other hand, the initiatives of NASAA and the SEC, make it clear that investment in the resulting securities will be regulated by securities regulators, as is the case in most states. The content of the NAIC Settlement Model, addressing the supposed “gap” in regulation of purchases of policies by investors should now be deleted and those states which have inadvertently adopted some portions of that Model, should delete those provisions and go with the national trend. Some aspects of this portion of the market may be regulated more clearly at the federal level if there are – in the future – public offerings of portfolios of policies. Such events are a way off, in my view.
Q What are the factors effecting the recent rekindling of interest in the Life Settlement field?
A There is nothing like the press. Especially above-the-fold articles in the Sunday New York Times. But seriously, the economics of the day have led more people to consider settlement options for economic reasons, while – at the same time – there is a search for alternatives to traditional investments. These trends join in an investment market which was damaged this year, and get public attention. The alternative to lapse or surrender represented by the settlement option is getting overdue attention due to the current market stresses.
Q L.IS.A. has members from all over the country. What is the primary interest of those who attend your conferences?
A Our Membership is as diverse as it could be. We have Providers and Brokers and service enterprises which help the industry to function. Our members are, like those of all trade groups, interested in the rules and standards of their trade and continuously made aware of the vital nature of good public policy. They come to our meetings to share ideas and to get market information which is up to date. But those who get the most out of our conferences also get a good dose of real speeches from real participants in the struggle for good policy regarding such essential elements as taxes, investment regulation, internal documentation, privacy, disclosures and the media coverage of our industry. These and a range of startlingly well informed speakers bring them up to date with the very latest developments and trends. So they beat a path to New York.
Q As an Association do you perform lobbying or advocacy or both? In either case, what are the principal foci of the Association’s advocacy efforts?
A We do some lobbying and advocacy, both. Our advocacy is primarily devoted to ensuring that the alternative of a settlement is available to a consumer and that the market is not “closed” for consumers by state law, tax policy or investment regulation. To keep an eye on these possibilities we work hard to ensure that our members are up to speed on the never ending array of issues in the states, and I travel a lot. It is surprising to me how much misinformation is out there, distributed by people who are either ignorant of the industry or just unable to grasp how well it serves consumers. Really this option makes the life policy purchase a better one and – I really think – ought to be part of the education of any well informed consumer. It is always surprising to me how many fantasies about inappropriate conduct can be devised by adversaries, but I think public policy makers, like NCOIL are increasingly aware of the benefit of our industry, not just for consumers, but for the economy as a whole. Specific foci for the year ahead are tax treatment, investment regulation and encouraging public education while ensuring that the remaining few unregulated states develop effective and truly consumer friendly legislation. People need this market.
Q There are increasing numbers of individuals from overseas interested in investing in Life Settlements in America and we understand vice versa. At what stage are we now with the internationalization of the Life Settlement market?
A The international market will grow; especially that of foreign investors interested in American policies. Japan is heavily insured, but the rights of policy holders there have been constrained by litigation and the opposition of insurers to this option. European policies do not have the same benefits and do not work the way the American life insurance industry works. So that market will grow in different ways, but most of the focus will be on investment in American policies. All of these investments will get the attention of investment regulators, here and abroad, while I think that the contentions surrounding the secondary market will ease and it will gradually become an accepted financial planning tool for all consumers. Maturity experience will help all to recognize that pricing levels will need some “tweeking” but not serious adjustment.
Q Many individuals seek to evaluate portfolios for investment and do so with the available tools. What are some of the things you see on the horizon for those wishing to invest in this field? What should they look for?
A I do think that investors should be very aware of the risk and that it is not suitable for individual investors who are not able to take substantial risk. We also believe that it is not appropriate, nor is it legal in New York, for individual investors to take an interest in an individual policy or a fraction of an individual policy unless there is an existing insurable interest in the insured. Investors should look to large institutions and hedge funds who are equipped to analyze this and other investments which need serious review and place their funds with institutions equipped to do this review and to assemble large portfolios of policies which will have smoother returns. Public offerings are a way off, for the most part, and so private placements will drive the industry for a while.
Q Is fraud a serious problem in the field?
A Fraud is over-rated. It makes for good press, but I feel that the phenomenon of STOLI, which some call fraud and may involve some fraudulent elements, is a plain old absence of insurable interest. The laws are pretty clear on what that means in most states. It has been striking to us that the insurers have so quickly addressed the issues of fraud in insurance application, but that it took a while for the issue to get their attention. Settlement buyers have no interest, whatsoever, in the purchase of inappropriately obtained policies or policies obtained by fraud. This is an arena in which, with good will on all sides, we can really move to ensure that any issues resolved.
Q What is on the horizon for L.I.S.A.?
A The organization will be striving for further public awareness of the settlement alternative to lapse or surrender. This will involve media, training, standards, advocacy in the states and federal bodies looking at the industry and better public education efforts through organizations which assist the public in both the private and governmental sectors. Obviously, our surveys indicate that there are many insurance professionals who do not have the necessary awareness of the industry and we want them to have the tools in their kit. We will be continually advocating for an automatic notice of this option when consumers consider lapse or surrender.
