By Matt Brady

 

One of the inescapable facts of life settlements is that they take longer than anyone involved wants. But, according to speakers at the recent Life Insurance Settlements Association conference in Washington, D.C., there may not be much anyone can do about it.

 

“Certain steps have to be done,” such as the underwriting and evaluating of a policy, noted Scott Kirby, co-president of business development and compliance issues for Orlando-based Advanced Settlements LLC.

 

But there are things an advisor can do to minimize the time a settlement process takes, he added. Providing a complete file and application to a life settlement broker is an example. If documents are missing, or even if they are just not current enough, “that slows the process down.”

 

There are a few reasons why files come in with incomplete or old data, he said. One is that “people want to travel down the path of least resistance” and try to get the settlement done with as little paperwork as possible. “It takes them a while to understand that we need as much information as possible,” he said.

 

Incomplete information can’t be fully evaluated by providers. According to Bryan Freeman, president of Habersham Funding, LLC in Atlanta, and one of the catches is that, as more and more pieces of information come in, they can trigger as many questions as they answer. “As they piecemeal that information to you, you see something you’ve never seen before and you have to ask about that,” he said.

 

David Hartman, chief operating officer of Baltimore-based Life Settlement Providers, LLC, said that, given the small percentage of life settlements that actually go through to completion, his company may simply remove many incomplete cases from consideration. “It slows our willingness” to look at applications if they are lacking in any way, he explained.

 

Hartman discounted the idea that technology could greatly improve the process, noting there is a lack of established standards for much of the data upon which life settlement providers. “Unfortunately, there’s no data standard for a policy illustration, for an application,” or for a Health Insurance Portability and availability Act release form, he noted.

 

There’s an element of “humanness” that can affect how long a settlement takes, too, Hartman pointed out. One aspect of that element, which often proves troublesome, is the insured, and what the insured does, or does not do, with the policy while the settlement process is ongoing.

Some insureds, noted Hartman, stop paying premiums before the closing, which can have a significant effect given that a policy illustration makes assumptions about payments being made.

“I don’t think it’s deliberate,” Kirby said. “A lot of it comes down to that last payment that’s due. They try to time it.”

 

Freeman was a bit more ambivalent on the issue. He said there are insureds who try to get out from under a policy having paid as little as possible, but they are ignorant of what the implications of missing a premium can be. “I think it’s deliberate that they don’t pay it,” he said, “but it’s not deliberate in that they don’t know how it affects things.”

Kirby, however, argued that some of the blame also falls on life settlement providers. For instance, the providers have a general system of dealing with the first agent to bring in a completed policy; this causes many brokers to rush and just get as much as they have on hand, he said. “The quicker I try to ship things, there’s a higher likelihood I’m going to have incomplete information” when trying to beat the competition.

Some of these time-related issues have also changed the way the industry works. Take life expectancy reports, for example. There’s little a broker or provider can do to speed a life expectancy evaluation, so Kirby noted that many brokers, himself included, have begun the process of obtaining an LE report on their own even before dealing with a provider.

 

“We’re getting pressure from the customer to get pricing as soon as possible,” Kirby said. This creates significant pressure for brokers, who may find themselves obtaining, and paying for, LE reports for cases that don’t ultimately end up going through. “The industry throws a lot of garbage at us, and some of it sells,” he commented. A large brokerage could, he estimated, spend as much as $500,000 to $1 million annually on LE reports. “It’s an expense that I guess is just part of doing business.”

 

Some providers have sought to speed the process by doing their own underwriting, but Jennifer Fleming, director of closing and funding for Atlanta-based BAC Structured Life Group LLC, said that a provider’s clients may want more assurance by using a more well known service. “You can do your own underwriting in house, but at the end of the day, you’re at the mercy of your funders,” she said. “They’re going to want a name.”

Fleming also touched on the human aspect in noting that insureds, at some point after the bidding, can become a bit unsure about someone else owning their life insurance. “Once you’ve gone through this two-month process and won the case, then you have to go and explain who you are and why this is a good thing for them,” she said.

 

Another area where the inconsistency of the settlement industry can be seen is the bidding process itself. Hartman said, “if you have not gotten a bid from a provider and a funder within two weeks, that provider does not want your business.”

 

Freeman disputed that, however, saying that different business models in the provider industry mean that some companies will take longer to get a bid out. “That’s the most inefficient aspect of this business,” he said of the funder/provider relationship for many companies including his own. A waiting period of two or three months for a bid “happens all the time,” he added.

 

Given the relatively young age of the industry, many finders are new to the business themselves, pointed out Kirby, indicating that this means that an education process between providers and their funders sometimes also has to take place.

 

Freeman also offered some advice based on his past experience as a broker, specifically with regards to paying the expectations game and giving insured a realistic idea for the insured of how long the process will take and what the result is likely to be.

 

“If you set pie in the sky expectations,” he said, “you’re going to get pie in the sky results.”