To achieve its growth potential in coming years, the life settlement industry must evolve its business model to better serve a fast-growing population of recipients of long-term care funded through Medicaid, according to the keynote speaker at the conference held for life settlement institutional investors on March 11.
Alan Buerger, CEO and founder of life settlement firm Coventry, issued this assessment at the 3rd Annual Institutional Investor Life Settlement Conference, held at the Harvard Club of New York City. The event was hosted by the Life Insurance Settlement Assocation (LISA).
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"Life settlement providers must change their business model," Buerger said. "Those that do will thrive and grow exponentially."
Buerger applauded the industry for having transitioned from a focus of ridicule and "violent" opposition during its nascent years to one where the value of life settlements have become a "self-evident."
That acceptance, Buerger said, is reflected in reduced life insurer-sponsored litigation and legislative initiatives aimed at curtailing the activities of the industry. The field's maturation is mirrored, too, in a decline "in inappropriate and fraudulent acts" among industry bad actors.
Buerger added that, where once life settlement providers were the focus of lawsuits by insurers, now the tables are turning.
"We're seeing a material increase in lawsuits where life insurance carriers now are the defendants for actions they've taken that relate to this market," Buerger said, adding the industry now also faces reduced bad publicity.
"There is virtually no [newspaper] headline risk anymore, and we won't have headline risk unless we don't police the activities of those who act inconsistently with good business practices," he said.
Having achieved a measure of acceptance by life insurers and industry critics, however, the life settlement industry now confronts new challenges to achieving greater growth.
One is to educate institutional investors—state and municipal pension fund managers, among others—that securitized life settlements are safe, non-correlating assets that should be included in a well-diversified portfolio allocation. That will help grow the pool of money needed to fund future settlements.
A second hurdle is to better serve life insurance policyholders of contracts with small face amounts. The life settlement industry, he noted, evolved from viatical settlements, transactions executed to serve an earlier generation of clients with small policy face amounts. Among them: AIDs patients who had a life expectancy of less than two years. Today, life settlement providers mostly serve seniors owning policies with large face amounts.
