The Institutional Life Markets Association, ILMA for short, came out with its list of best practices for life settlement providers. Keep in mind, the ILMA is slanted from an investor's persepective. This is a not-for-profit trade association focused on the longevity market as an investment class. In essence, this is the investor's wish list of what a life settlment transaction should have to make them, the investor, feel more comfortable.
It is hard to argue against most of their best practices. Some of the suggested items are:
1) Providers certifying the intermediary (i.e. a life settlement broker, insurance agent, financial advisor or attorney). Life settlement providers already do this to some extent, but the degree to which it is done varies dramatically.
2) Guidance to providers on transferred policies; whether policy premiums have been financed; anti-fraud plans including retention of a medical professional or underwriter capable of comparing policy applications to medical records for material discrepancies; and privacy policies; and direction on state and federal laws and regulations compliance.
3) Policy owners should only work through certified intermediaries unless the policy owner has a net worth of at least 1,000,000. Essentially, if you aren't an accredited investor type, don't think about calling Coventry yourself. This is moronic to me. Is the ILMA suggesting that those with a lower net worth aren't sufficiently sophisticated enough to handle a direct to consumer life settlement provider? Why not? Perhaps the policy owner wants to save the brokerage commission? If they are of a lower net worth, the brokerage commission is probably more important anyway. Perhaps the policy owner has excellent counsel and advice, but their advisor (whatever type they might be...estate, law, insurance, financial, etc.) isn't participating in the transaction, but merely advising on the impetus for selling the policy? We can not continue to attempt to save people from themselves or assume people are not capable of things they may very well be capable of. Trying to treat selling one's personal asset, their life insurance policy, as analogous to investing in hedge funds doesn't make sense.
While the best practices didn't explicitly call for the use of a life settlement broker, it seems implicitly communicated that the best intermediaries are life settlement brokers. No insurance producer, attorney or financial planner could realistically execute the intermediary best practices called out by the ILMA if they only attempt life settlements intermittently. Only dedicated life settlement brokers are capable of effectively establishing the market price of a policy since they are most likely to have the most well developed networks of funding sources and consistent implementation of best practices described by the ILMA. I for one agree with this assertion.
To implement the best practices across the industry in a uniform fashion will require time and financial resources. I don't know how interested providers, in a time when funding isn't pervasive, are in adopting the ILMA guidelines. Then again, if this is what investors want, perhaps the providers won't have a choice.
To read the ILMA's best practices in their entirety, please visit the ILMA's website at www.lifemarketsassociation.org