Growing Awareness of the life settlement option
With each passing year a larger percentage of policy owners and their advisors are becoming exposed to the life settlement option - an alternative to surrendering or lapsing a life insurance policy that was virtually non-existent 10 years ago. Today's investors benefit from a significant improvement in the level of professionalism of industry participants, as well as the expertise of actuaries, medical underwriters and service providers. The industry has been performing have been mitigated to the benefit of new investors entering a more transparent marketplace. Furthermore, financial advisors are increasingly becoming aware that they have a fiduciary responsibility to their clients to provide them with the life settlement option rather than surrendering unneeded or unaffordable policies to the carrier or allowing them to lapse.
Life settlements have been gaining increased press coverage in recent years related to a greater push for federal and state regulation to be put in place. In 2009, Senator Herb Kohl spoke about the life settlement industry in front of the Special Committee on Aging, saying "Life settlements can be a worthy alternative for seniors who are considering the sale of their life insurance policy, and offer a higher payment than the cash surrender value offered by the insurance company." Also in 2009, states began passing legislation that requires the disclosure of life settlements as an alternative option for seniors and the terminally ill who were surrendering their life insurance policies. In late 2010, the National Conference of Insurance Legislators proposed a bill that would make it mandatory in all states for insurance carriers to disclose to a select group of policy owners, those who qualify for life settlements, to be aware of the when terminating or cashing in a policy.
The Life Insurance Settlement Association has worked together with Institutional Life Markets Association and European Life Settlement Association for market transparency, standardization and best practices. The most important example is the mandatory disclosure of agent and broker commissions to an Insured selling a policy. Commission disclosure is now a statutory requirement in both New York and California. These states are the two largest settlement markets, accounting for nearly 40% of all settlements transacted in 2009. Compensation disclosure is now an industry best practice required by all institutional funders as well as Peninsula and other market leaders. Examples of standardization include: widely used pricing and probabilistic valuation software developed and updated over the decade by the Milliman actuarial firm; standardized purchase and origination contracts developed and approved by the Institutional Life Markets Association (led by Credit Suisse); medical underwriting "best practices" that provide for a standard methodology and mortality table to be used in measuring and reporting actual to expected life expectancy projection performance; and the secure and efficient data management applications that have been developed and now commonly used by brokers and providers in sharing sensitive and private Insured data, supporting a secure and efficient case coordination and valuation process.