While some in the life settlement industry expect that the current economic crisis will lead more people to tap the market value of their life insurance policies, it has also led to a drying up of the well for funding and a rash of funders backing out of contracts at the last minute.
At the fall meeting of the Life Insurance Settlements Association here, several LISA members talked about the problems facing life settlement brokers and providers due to the global financial meltdown's impact on would-be settlement funders.
"We've moved from hyper-growth to a period where things are probably a little bit flat," noted Russel Dorsett, a co-managing director at Northport, N.Y.-based Select Life Settlements, adding that it is "no secret" that the number of entities looking to buy policies is down at the moment.
It is a problem when funding disappears, and when that funding disappears after contracts have been signed it can have a "painful impact," he noted. "We end up having to renegotiate the contract, usually for free," he said. "When I have to take a policy back to the market, I never get the value that I got the first time out."
Aside from having to absorb the costs of re-doing the selling process, Dorsett said the life settlement industry suffers when a seller has to be told that a deal didn't go through. "It's a very unpleasant conversation" to tell an insured or their agent that a deal isn't going to happen, he said. "The next question I usually get is 'well, who do I sue?'"
Given the struggles the life settlement industry, and LISA, have gone through to seek what they see as fair regulation, Dorsett, a vice president of the association, said, "I live in fear" that one of the sellers shortchanged by a pulled contract will draw more negative attention to the industry.
"That's not the story I want told," he said, "because that's one of the things that impacts us and gets regulators excited." A withdrawn contract also creates a negative impression on agents and advisors who stand at the front line of life settlements, and find themselves in the position of telling a client that not only will they not be receiving the funds from a sale, but that they have to cover the continued costs of the policy. "It's easier to talk about delivering a check than it is to ask someone to write one," he said.
LISA President David Hartman, chief operating officer of Baltimore-based Life Settlement Providers, said the issue of withdrawn contracts was one for more than just the specific company involved, noting that "what's bad for one of us is bad for all of us."
Adding to the confusion is the fact that much of the effort towards transparency in dealing with life insurance policy sellers has not carried over to the other side of the transaction.
