Is the life settlement market in trouble?

According to National Underwriter,the Washington State Division of Securities has issued an alert stating that life settlement investments are securities, and as such can only be sold by licensed securities salespeople or broker-dealers.

The notice, “Considering Selling Life Settlement Investments?”, defines a life settlement investment as follows: “After a life settlement contract has been created, the contract, or an interest in it, may be sold as an investment. In the case of life settlements, an investor may purchase a whole life settlement contract or a fractional interest in a life settlement contract. In the case of fractional interests, investors typically rely on a provider or broker to administer the contract.”

And why might they be  securities?

“Life settlement investments often fit the definition of a ’security’ under the Securities Act of Washington, chapter 21.20 RCW. Among other things, the definition of ’security’ includes an investment contract. Under the investment contract test, a security exists when there is an investment of money in a common enterprise with the expectation of profits to be derived primarily from the efforts of others. A life settlement investment often constitutes a ’security’ under the investment contract test and may be deemed a security on an alternative basis.”

Some producers may believe this is 151A all over again. Is this the case?

Maybe.

One thing worth noting is that this alert wasn’t issued in a vacuum. In late July, MarketWatch reported that the U.S. Government Accountability Office had warned consumers to avoid life settlements because the lack of clear state regulation of the transactions.

And on July 22, 2010, the SEC issued a press release stating the recommendations of its Life Settlement Task Force: that life settlements are securities, and should be regulated as such.

Just as 05-50 eventually led to the SEC’s Rule 151A, the actions of certain states can lead to national measures taken against a wide swath of producers’ business. These recommendations, from the SEC task force release, certainly sound familiar:

• Consider recommending to Congress that it amend the definition of security under the federal securities laws to include life settlements as securities.
• Instruct the staff to continue to monitor that legal standards of conduct are being met by brokers and providers.
• Instruct the staff to monitor for the development of a life settlement securitization market.
• Encourage Congress and state legislators to consider more significant and consistent regulation of life expectancy underwriters.

What do you think? Do Washington state’s actions and the task force’s recommendation throw up a red flag? Or are the producers involved in life settlements already largely covered by securities licenses, seeing as how they’re involved in such a complex market? Is this cause for concern? Or is it merely a formality?

Share your thoughts below!

This guest post comes to us courtesy of Dean A. Hill, an independent life and health agent in Michigan who specializes in individual health and small to mid-sized business planning. He founded Brightside Consulting in 2005.

Now more than ever, we must remain positive about our role and maintain clarity of purpose in our daily dealings.  The mere peddlers of product will certainly fade in to the background, making way for the true thought leaders and health plan navigators of our time.

If you are excited about this, please read on.  If the skepticism remains, we wish you well.

The final decision on how we are compensated in the future is, in many ways, yet to be determined.  Rather than reacting, we can respond to reform through our actions and interactions with clients and prospects.  Through these conversations and deeds, we can position ourselves as industry experts who just happen to sell health insurance as a byproduct of our role.

If we can paint that picture with our clients and prospects, then the “commission question” becomes inconsequential.  We become their consultant, not their agent.  We become their advocate and business partner.  Advocates and business partners not only will be guaranteed a living – they will be guaranteed a life.

A case in point

Several years ago, I worked with a client who owned a chain of retail auto parts stores.  Many of their employees were morbidly obese, and the sedentary nature of their job didn’t help this problem.

We worked with the client to obtain a nutritionist and registered nurse through a local nonprofit organization, who would come and speak with the employees. The cost was nominal.  Over the course of several months, they held sessions to educate employees about basic nutrition.  My wife and I attended the meetings as well, as a show of support and as an example to the employees.

In the end, a young store employee weighing in at 300-plus pounds decided to change the paradigm.; through the process, we discovered that he was a trained chef, but had never quite understood the mechanics of nutrition in the kitchen.  He set a goal that he wanted to meet the weight restrictions of sky-diving – and within six months, he did so.

I am humbled to have been given the chance to partner with a client who understood the need to do what we did.  I am also proud to be a health insurance agent who can find themselves in the position to help companies and change lives.

What you can do

Take the time to understand your clients now, more than ever.  Become students of their business, talk to their employees, and learn to genuinely appreciate the role they play in being an economic engine in your community, city, or state.  This mindset will translate to permanent relationships that will stand the test of health care reform, and ultimately generate more business and opportunities for your firm.

Now, go help someone!

Dean A. Hill can be reached at dean@thinkbrightside.com.

Over the past few months, I have seen an unprecedented number of doomsday rhetoric in the trade and mainstream media.

SEC’s 151A spells an end to the independent distribution channel. PPACA spells an end to the independent health insurance agent, to long term care insurance, to Medicare Advantage.

(OK, that last one, about Medicare, was ours.)

When you take a step back and look at the big picture – not just in the insurance industry, but as a whole – things look even worse. While we’re not yet technically in a double dip recession, we appear to be headed in that direction. The modest job growth we saw this past spring seemed to be a product of 411,000 temporary Census positions. According to a July 2post on Time magazine’s Curious Capitalist blog, 1 million Americans simply stopped looking for jobs in June, removing them from the unemployment rolls, but not from unemployment. Consumer confidence is dropping at the fastest rate in 15 years. Housing prices started to recover, then slumped again.

Phew! I want to take a nap just thinking about all of it.

Yet it’s too easy to get lost in all of this. It would be ideal if I could vow to never read another news article again. As the editor of a national business-to-business publication, that would be a silly vow indeed. So instead, I keep this in mind: Until things actually fall apart, until I lose my job and then can’t find any work and fail to have enough money for groceries and get evicted and live on the streets – I’m not going to worry about all that.

That’s not to say I won’t prepare. I’m no ostrich. But it’s too easy to whip myself into a frenzy about the downward spiral that I haven’t even yet found myself in.

And here’s the point at which I relate this all back to you. Whether health care reform means no more agent, or regulations mean no more insurance, or housing prices slumping mean no more civilized society – I don’t know. Neither do you. The best course of action, I’ve heard, is preparing for the worst while putting one foot in front of the other. This month, we explore the benefits market with the results of our 2010 Employee Benefits Market Study, and our associate editor, Heather Trese, poses the question to which I alluded earlier: Is Medicare Advantage undergoing a transformation for the worse?

But don’t let all that deter your progress. If you’re employed today, and selling policies, the best you can do is keep moving forward. Your positivity and confidence will be rewarded tenfold once things do look up.

And I’m no economist, but I believe they will.

Now that the Dodd-Frank bill has passed the Senate, you may be wondering: What does this mean for me?

According to National Underwriter Life & Health, “H.R. 4173 provisions would affect the standard of care that applies when insurance agents and brokers sell investment products, create a Federal Insurance Office (FIO) at the U.S. Treasury Department,  give states of domicile more authority over regulation of reinsurers, impose new standards on the rating agencies, classify indexed annuities governed by National Association of Insurance Commissioners standards as state-regulated insurance products, and impose new suitability standards on sellers of annuities.”

There are eight major components of the financial reform package:

1. Fiduciary responsibility
2. Financial designations
3. Federal insurance office
4. Optional federal charter
5. Financial stability oversight council
6. Consumer financial protection bureau
7. Senior investor protections
8. Equity indexed annuities

So how do you feel this package will begin to transform your practice over the next few years – if at all? Share your thoughts and comments here, and watch our for upcoming coverage from the Summit Business Media life and health group.