Life Settlement Market Picking Up Again?

In the October 25, 2010 issue of InvestmentNews, commentator Wm. Scott Page, President and CEO of The Lifeline Program, a life settlement provider, has an interesting “Viewpoint” piece on the return of the life settlement market. At the recent AICP conference, I spoke on Product Innovations in Life Insurance and one of my slides was used in conjunction with a discussion of the decline of life settlements that has occurred over the last two years. Mr. Page says that is over. And he offers his thoughts on why.

The key factor he points to is the decline of “manufactured” life settlements and stranger owned life insurance. He reports a return to the industry’s roots: “those owned by seniors who no longer need or who no longer can afford them.” In addition to these seniors, he points to key person policies as a significant market: policies that are owned by companies on the lives of executives who are no longer employed with them.

One of the other points he makes is that “transparency of transactions, and full disclosure of fees and commissions, must continue because they bolster our legitimacy. And provider companies must continue to present unimpeachable proof of funds when offers are made.” This seems to be essentially an argument for regulation. And it is one that I think applies to life settlements and all financial products. Without effective regulation, there are too many short term incentives for individuals and organizations to cut corners and do what is expedient but not good for producers, companies or industries in the long term.

Mr. Page discusses the decline of stranger-owned policies and life settlement industry best practices as if they developed organically, without intervention. Perhaps a cynic by nature, I think that is unlikely. I think one can look at state regulatory action and media attention on both of these fronts for the impetus for change in the settlement industry (along with other factors related to the national economic conditions). Mr. Page’s conclusion that “The life settlements industry continues to evolve at a rapid rate. Fortunately, we have seen several positive developments in recent months that show that the industry is on track and that future expectations will likely be met.” may be accurate, but I think it ignores the role of regulation on that evolution.