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Please create an overview of the current eco system of the life settlement industry.
Hello there! Thank you for your question on the current ecosystem of the life settlement industry. The short answer is that the market is growing, with market volume increasing by 32% over 2015. The most prominent trends are an influx of start-up providers and a rising cost of insurances which has had a negative effect on providers. Below you will find a deep dive of my findings.
METHODOLOGY
I began by familiarizing myself with the life settlement industry as a whole. Next, I conducted a comprehensive search through academic databases, corporate websites, industry reports, government reports, and regulatory filings for any relevant information. In order to provide a full scope of information, I looked at trusted media sites, user forums, and review sites to develop an understanding of the opinions and trends surrounding the industry. I found The Forbes article and The Deal report to be the most useful sources of information.
FINDINGS
As a basis for my finding, here is a working definition of a life settlement: "A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its face value, or death benefit. A policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured."
The industry on a whole holds a level of risk to the sellers. The main players in the market are private equity funds, insurers, and pension funds. These three areas make up the majority of the life settlement market. The market on a whole has an annual revenue of approximately $35 billion. This figure shows a slight increase in previous years ($2 billion).
A recent trend in the industry is a rising cost in insurances. This has had a negative effect on portfolios. In an example, Lincoln Financial and AXA Equitable have recently seen raises in the cost of their life insurance policies in 2016. This trend is a continuation of previous years. In the past, the increase in price has caused a negative effect on the valuation of life settlement portfolios contained in the carrier's policies. Settlement brokers have seen a change in pace. The traditional life settlement brokers have become a fragmented market of small brokerages. Providers of life settlements have spread to investors: "Life settlement providers are companies that are licensed to purchase life insurance policies on behalf of large institutional investors. Sometimes a provider themselves may also be an investor. All reputable life settlement investors utilize life settlement providers for origination."
Here you can find a substantial amount of quantitative information on the rising competitive landscape of the industry. In an overview, the top 15 providers of 2015 are defined as:
An industry expert gives good insight on the current trends surrounding the industry: "The life settlement market seemed to be making a comeback with a renewed focus on te purchase of smaller policies," said Donna Horowitz, senior editor of The Life Settlements Report, a service of The Deal. "The market is poised for further growth, as the trend appears to be continuing. In recent years, the secondary market took a back seat to the tertiary market in which portfolios of previously purchased policies are traded. That may no longer be true."
Recently, technology service providers and start-ups have begun to enter the life settlement market. These companies offer life settlement quotes online for the convenience of the consumer. Ovid Life is an example of a successful start-up that has moved into the industry. They have risen to become one of the biggest and most reputable providers. This new trend is described to have brought liquidity and transparency to the secondary market for life settlement policies. The exact way in which these companies work is described in detail:" Traditional life settlement brokerage fees cost roughly 6% of the life insurance policy’s face value – a significant piece of the pie that settlements offer. Policyholders generally get between 15% and 30% of a policy’s face value when they settle". Another notable firm Q Capital Strategies is mention in respect to this insight.
CONCLUSION
To summarize, I have taken a deep look into the life settlement industry and the current trends that surround it. The most prominent finding is that technology service providers and start-ups have emerged in the market as transparent providers. Q Capital Strategies is most commonly mentioned across sources as an industry leader. Market volume has increased by 32% over 2015.
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