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May - June, 2006 |
Vol. 1, No. 1 |
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Settling on Credible Information
Studies, debates and published articles on the life settlement industry sponsored by insurance providers and settlement companies are abundant. However, determining the most credible data through the wave of information can be a challenge.
During the past few years, independent, third-party research firms such as the Wharton School of Business and Bernstein Research have spoken out about life settlements. Bernstein Research estimates the “secondary market for life insurance will grow more than tenfold to $160 billion over the next several years … based on an average holding period of 7-8 years, the expected return on a settlement is 9-13 percent.”
Arguments made by these research firms for the life settlement industry include benefits to all involved parties – life insurance providers, settlement companies, investors – and most importantly, your clients.
For example, according to Bernstein research, “the development of the settlement market could result in a new fiduciary duty on the part of financial planners. Specifically, insurance agents and other producers will feel an increasing responsibility to present life settlements as an option to their clients. The alternative today is simply to take the path of least resistance and let customers surrender their policies. It is clear that the overall financial services examples include investigations of life and annuity sales practices. Given that life settlements typically offer payments that exceed cash surrender values, regulators in the future may perceive that it is part of a financial advisor’s fiduciary duty to investigate life settlement options on behalf of clients.”
Just as settlement firms are dependent upon life insurance providers writing policies, the Wharton Financial Institutions Center predicts a reciprocal relationship as the secondary market for life insurance grows. “As more policyholders become aware of the opportunities presented by life settlements, and as it becomes possible for more policyholders to obtain the fair market value of their policies, consumers will perceive an increase in the quality of life insurance, which will have a positive effect on the demand for life insurance.”
Based on the in-depth and unbiased research done by third parties, Life Settlement Solutions places the highest value on research findings by independent organizations, and positions its strategic direction in alignment with these studies.
For more information about these studies, or Life Settlement Solutions, please call 858/576-8067 or visit www.lss-corp.com.
To read the Wharton School of Business study, visit http://fic.wharton.upenn.edu/fic/papers/02/p0241.html.
Moody’s Report Analyzes the Life Settlement Industry
In February 2006, Arthur Fliegelman of Moody’s Investor Service issued a report on the life settlement industry. He contends the market for the life settlement industry has expanded in recent years to a significant and growing segment of the U.S. life insurance industry. Further, “an entire marketplace has developed to satisfy investors’ growing interest in these instruments.”
Moody’s projects the following key developments for the industry:
The secondary market for life settlements and other policies that fully optimize the value in polices will expand and broaden over time.
Expansion of secondary markets for these products and options will cause pressure on life insurers’ profitability as value in policies is extracted and maximized by third-party investors.
- Life insurers need to be more mindful and price for the embedded guarantees on their policies, since there will be increasingly market efficient utilization of these guarantees and value in policies.
- In the author’s view, “the most interesting part of this market is its role as a continuing evolution where the life insurance industry and capital markets are increasingly intersecting in new and non-traditional ways.”
American College Industry Summit
The American College, the only accredited, nonprofit educator of professionals in the insurance and financial services industry, recently hosted its second annual industry summit in Chicago on Dec. 5, 2005, focusing on state versus federal regulation of the insurance industry and the emerging life settlement business. A distinguished panel of experts discussed the moral and ethical considerations regarding the growing field of life settlements.
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