The life settlement is a legal, regulated process for liquidating life insurance. Unfortunately, the regulations in place don't fully address the culture of mistrust in the industry. That culture is an outcome of the traditional process: Life settlement cases have historically been managed behind the scenes, with each stakeholder having access to only some of the case details. That veiled environment allows providers, agents, advisers, investors, brokers and policyholders to work at cross purposes.
Complicating matters more, the amount of funds available to buy policies has exploded in recent years. As more money circulates in the industry, dishonesty and deception remain key issues that ultimately work against all stakeholders.
However, advancements in machine learning technology are changing the landscape of the life insurance industry, making life settlements more open and accessible to policyholders than ever before.
Underlying mistrust and lack of transparency
The traditional life settlement auction process has pockets of secrecy. Insureds, agents, advisers, life settlement brokers, life settlement providers and life settlement funds rarely have access to the same set of information. Brokers typically act as gatekeepers, with the freedom to share or withhold details as they see fit. That naturally creates a lack of transparency and fosters mistrust.
Some of that mistrust is warranted. Unethical brokers will award cases based on relationship rather than bid size. That's a clear disservice to the insured, who assumes the broker is working to negotiate the highest selling price possible. In these cases, the broker must intentionally limit the auction information provided back to the insured. The insured certainly won't see the highest bid -- and also may not know how the winning offer was calculated or where it came from.
Fortunately, these problems are solvable with technology. Life settlement auction platforms create transparency by giving all stakeholders access to the same information. With case details and bids accessible electronically, the auction becomes unbuyable. Whoever submits the highest bid wins the case, period. There is simply no room to make a backdoor deal, which ensures a fair process for everyone involved.
See also: Adding Transparency to Life Settlements
Poor communication, whether intentional or by accident, worsens the lack of transparency in the traditional life settlement process. Layers of hidden fees charged by providers or brokers cut into the insured's proceeds -- often, without the insured's knowledge.
As an example, a broker might deliver a net offer to the insured, with no breakdown of the gross selling price and the broker's commission. As well, providers may put in offers net of their fee, essentially hiding those fees from funders.
Policy metrics can be another area of confusion. Actuarial firms, responsible for valuation, may be inconsistent on key metrics, such as life expectancy. That misalignment of data works against providers that are trying to put their best offer forward to win the deal.
Again, technology can solve for missing or inconsistent data. Life settlement auction platforms state valuation metrics upfront so all parties are working from the same set of numbers. They also require families to sign off on commissions for every transaction -- ensuring full transparency into the fees paid out of sale proceeds.
Reinventing the life settlement market
Until now, it took months for financial professionals to understand and identify which life insurance policies have value and provide the proper guidance. A primary cause for this is cost of insurance (COI) data being fiercely protected by life insurance companies. COI incorporates several variables, such as when the insured purchased the policy, how old they were when they bought it, their health at the time and the policy type, which determines how much each policy is worth.
Thanks to machine learning technology, the future of the life settlement industry is bright. Financial professionals can now use a life settlement calculator to evaluate their entire book of clients in a matter of minutes and identify which would benefit from a life settlement. Technology makes the life settlement decision process easier than ever so advisers can understand their client's full financial picture and provide the right guidance, especially during times of economic distress.
The life settlement industry is growing 34% per year on average and is expected to be worth $212 billion by 2028. Each and every American deserves to know the true value of their assets so they can make the best decisions for themselves and their families. With AI-powered technology, life settlement valuations are now a far more accessible, honest process for more policyholders nationwide.