|Title:||United States number of life insurance policies settled, face values and total amounts paid to owners in dollars, and total commissions paid to brokers for 2006 to 2009|
Start of full article - but without data
A U.S. Government Accountability Office report on the life settlement industry described the market as being organized largely as an informal network of specialized intermediaries. Here are the total number of policies settled, face value of policies settled, amount paid to policy owners and commissions paid to brokers for 2006-2009:
Face value Total amount Total Number of of policies paid to policy commissions policies settled owners paid to brokers Year settled ($ billions ($ billions) ($ billions)
2006 X,XXX $X.XX $X.XX $X.XX 2007 X,XXX $X.XX $X.XX $X.XX 2008 X,XXX $XX.XX $X.XX $X.XX 2009 X,XXX $X.XX $X.XX $X.XX
Source: GAO survey of life settlement providers
While regulatory oversight of the secondary market for life insurance has expanded in recent years and brought a stabilizing effect, challenges to growth remain on both sides.
For regulators, financial reform at the federal level has raised expectations on consumer and investor protections, prompting consideration of a need for more-consistent standards in the life settlement industry.
For life settlement providers and brokers, there is the added cost that comes with increased compliance, coupled with an ongoing need to breed familiarity with regulators and raise awareness among consumers.
Striking the proper balance between each objective may well determine the needed involvement of a third key player--those willing to bring investment capital into the segment.
"As the regulatory platform has really gotten its legs under it, I think the capital markets have become more confident that this is a well-regulated industry," said Alan Buerger, chief executive of Coventry First LLC, a Philadelphia-area-based life settlement provider.
Buerger described regulatory inconsistencies across state lines as minimal and said disclosure requirements that now apply in some states to brokers and providers are very similar across boundaries.
While all but XX states and the District of Columbia have yet to adopt life settlement regulations, Buerger noted that XX% of the nation's population lives within areas that regulate life settlement transactions. He said the main areas of the law and disclosure requirements are largely consistent, but that states tend to do things in different ways.
"The real challenge is the expense of having to deal with regulators nationwide as opposed to a single regulator, or where there are common forms or common reporting," Buerger said.
Buerger's involvement in the life settlement industry dates back more than XX years, when states made it onerous, if not impossible, for agents to get involved with the sale of life insurance policies by individuals to third parties.
He said the segment has now evolved into a handful of national life settlement brokers and a handful of regional ones. Consumers now have more options, and disclosure requirements on broker compensation in some states have added another dynamic.
"Because it's now common to have compensation disclosure, the broker has to justify the added value that they provide," Buerger said. "Many settlement brokers provide significant value because they know the market. They can shop and do a good job for the agent and the client, but many do not. Sorting that out is a difficult thing for agents and policy owners."
Difficulty in discerning the added value was referenced in a July 2010 report that the U.S. Government Accountability Office conducted on the life settlement industry.
Forty-five states responded to a GAO survey that was incorporated into the study, which pegged the life settlement industry's size at somewhere between $X billion and $XX billion in 2008.
Twenty-two states require brokers to disclose compensation, and XX require life settlement providers to disclose the compensation that brokers receive in a transaction.
According to information supplied by XX providers, broker compensation as a percentage of the total amount paid to policy owners in life settlement transactions was X% in 2009, down from XX% in 2006.
When it came to regulatory scrutiny, the survey results showed that XX state regulators had the authority to conduct exams of licensed brokers and two dozen had clone so in the past five years.
Similarly, only XX of the XX state regulators conducted exams of providers in the past five years.
Further defined in the GAO study are consumer-oriented challenges that policy owners may face in assessing whether life settlements are the best option, whether they are being offered a fair price and if they understand the risks that could manifest as tax issues.
A separate analysis by Conning Research & Consulting of the life settlement industry noted that the resources the industry used to help foster stabilizing regulations can now be channeled into building awareness. Among the fallout from those regulations are "increased barriers of entry for new providers and brokers." Emerging areas of state regulatory concern also cited in the report included licensing fees and continuing education for industry professionals.
The settlement of annuities is part of a tax reporting issue that is also emerging. "Tax reporting on the sale of life policies requires obtaining information from the insurer, which in some cases has been difficult to obtain," the Conning report stated.
Buerger said his company now has eight or nine employees that are focused on compliance issues.
He can point to elements of his company's own life settlement transaction process that were implemented more than a decade ago as part of an effort to build standards that were eventually adopted by a fledgling industry.
Every sale requires a preclosing interview with a policy owner and signed approval from the beneficiary, practices that Buerger said have become standard in the industry.
There are background checks on those who submit business, and the individual broker's license is checked before each transaction.
For acquired policies with a face value of $XXX,XXX or less, an attorney or certified public accountant must provide a letter stating the policy owner understands the transaction.
Interestingly, Buerger said he believes that people should hold onto their life insurance because it's a valuable asset.
"But if they cannot afford to keep it, or their circumstances have changed, they can't meet the premium requirements for whatever reason, then the option of the life settlement is a valuable option," he said. "We want to make certain that that seller understands the transaction and what they are giving up."
M. Bryan Freeman, president and managing member at Habersham Funding LLC, an Atlanta-based life settlement provider, said many consumers still aren't aware that selling a life insurance policy to a third party can be a valuable alternative to letting it lapse or surrendering it back to the company.
A half-dozen states require insurers to inform consumers of the option before a policy lapses or is surrendered. Yet, Freeman said some captive agents are told by carriers that they can't be a part of such discussions. It's a practice that he said creates a real conflict.
"You don't want a situation where it was in somebody's best interest to do a settlement but you've told your agent they can't even talk about it," Freeman said. "If you look at any other financial instrument that's being transacted with consumers, there are reams and reams of disclosures so that people know their options."
Like others in the life settlement industry, Freeman welcomes a reasonable and effective level of regulation. His firm is among the XX% of licensed life settlement providers that belong to the Life Insurance Settlement Association, an advocacy group that has been instrumental in helping to pass laws at the state level.
Freeman said that while brokers and providers are obviously faced with more regulations, they can have a stabilizing effect. He said that in most domiciles, life insurance agents can easily transition into becoming registered life settlement brokers by filing a form and paying a fee.
Freeman also touts Habersham Funding's awareness and sensitivity to fraud. Ten employees at the provider have been certified as fraud examiners through the Association of Certified Fraud Examiners, and Freeman said he wants more to have that education.
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