Encroachment is defined by Merriam-Webster as “to enter by gradual steps or by stealth into the possessions or rights of another.” In the life settlement industry, there are several examples of encroachment taking place. Life insurance companies, unlicensed life underwriting companies, and unlicensed life settlement brokers and providers are encroaching on the marketplace in various ways. These behaviors are neither legal nor necessary, and the way in which these bad actors behave misleads and harms consumers as well as the legitimate industry.
Life Insurance Carriers Violating Life Settlement Regulations
Some life insurance companies are guilty of encroachment by extending Enhanced Cash Value, or ECV, offers to consumers holding their policies. An ECV is the insurance companies' way of trying to buy back a policy they issued in the past before it can be sold in the life settlement marketplace. However, this activity violates most states’ life settlement regulations in a number of ways, and the Life Insurance Settlement Association (LISA) efforts to address this with state regulators is proving successful.
One key point, however, is that an ECV is an offer to buy a policy, and that activity is regulated and, in most states, can only be conducted by a licensed life settlement provider. Life insurance companies can apply for a life settlement provider license, but they haven’t. Instead, they have tried to circumvent existing laws and regulations and disrupt the life settlement marketplace, often, as the definition above states, by stealth.
Why? Because as the old adage says, insurance companies (including life insurance companies) are not in the business of paying claims, they are in the business of collecting premiums, managing money, and avoiding risk. In other words, because life settlements almost always result in a claim for benefits, every policy the life insurance company can remove from the marketplace is a claim that won’t be paid.
Encroachment in Life Expectancy Underwriting
In the life underwriting sector, another form of encroachment is occurring, but it's far more subtle and harder to combat. Only two states regulate the business of estimating life expectancy. It’s a difficult and complex thing to regulate, and even many life settlement businesses do not understand all it entails. That means that almost anyone can hold themselves out as a life expectancy underwriter. Whether more or different regulation is required is one question, but the other is that most investors, who are the parties that hold the micro-longevity risk related to life settlements, don’t do enough due diligence before they decide which life expectancy underwriters to accept. For the life settlement industry to grow and develop as it should, only licensed companies should be involved in the marketplace.
If you are interested in learning more about how ISC Services partners with trusted, licensed life settlement brokers, contact us today.
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