The primary "issue" I have with this piece is that it makes several references to how bad this is for the insurance industry. That life insurers will no longer have policies lapsing that they "counted on" , therefore their pricing assumptions are badly flawed, and now they will have to increase premiums on future insurance products. In fact, Steven Weisbart, chief economist for a life insurance trade organization stated "This defeats the idea of what insurance is supposed to be; it's not an investment product". Apparently Mr. Weisbart has never worked in the trenches of an insurance underwriting department or he would understand that although underwriters place insurable interest and need the top of their list when assessing the risk, they also build into their analysis in-force insurance (as an asset utilized to evaluate an individuals net worth) and also look at factors such as income replacement, retirement needs, and business protection. So much more than pure death benefit, all which equates to an investment product from the insured's perspective.
The article furthers it's assertion that life settlements are a bad wall street scheme by pointing out how unfortunate it is for the life insurers that these policies are no longer going to lapse. For those that don't know the figures, carriers build in, on average, a 30% annual lapse rate on new products. So, even though they contract with insureds to pay claims at death, they really never intend to pay a large portion of those claims. In fact, they really plan on recouping their origination fees, and several years of premium (a.k.a. profit) with the hopes that when their insureds children grow up, they retire from their business, etc., than the insured will tire of paying premiums for a death benefit they no longer "need". The life and reinsurance carriers than ride off into the sunset with their money bags full on years of invested insurance premiums (profits) . Outrageous to think that the insured actually has an opportunity to utilize their policy as the asset (an investment they have paid into for years) when the insurerer was counting on them lapsing!
As with most articles about life settlements, the consumers always seem to get lost in these discussions. For the consumer that is going to otherwise lapse a policy, keeping in mind that they have already paid thousands of dollars in premiums (profit) to the life insurer, they now have the option of selling that asset, obtaining a settlement that they can now use in a productive manner (i.e. placing it into other investment vehicles, retirement plans, long term plans, or retiring on some remote beach!). Why should they be expected to walk away from that asset, or get a minimal cash payout from the life insurer when they now have another option.
The final, and lingering question is, why should life insurers not be held accountable for every life insurance contract they execute?
Underwriting "Term Du Jour": DOC - drug of choice
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