if carriers continue to give less than full value then consumers would go to the secondary market. He was prophetic, and that’s the reason why the market took so many
years to develop. The carriers created the opportunity and
we moved in to take advantage of that opportunity. The inef-ficiencies are, very simply, very little cash in policies. The
carriers put themselves in the position of policies being sold
and kept in-force.
Why has the life settlement
industry not done a better job
at differentiating itself from
STOLI and life settlements are two different things. The
carriers have been successful, to an extent, in conflating STOLI with life settlements. That is by design, and it
is designed to confuse investors, regulators and legislators. If we look at the legislative arena, which is where the
battle has been fought over the last decade, the carriers
go in and list to legislators a parade of horribles—all the
problems with life settlements.
STOLI was created by the life insurance carriers, if you
go back and look at a transaction called LILACS, it is a
transaction that is pure STOLI. It was promoted by UBS
with the full knowledge of the carriers. It was a structure
where someone would take out, let’s say a 10 million dollar policy and an annuity, and the annuity was designed to
pay the premiums on the policy and a loan would be taken
out. So, the annuity was designed to pay the premiums and
pay the loan interest on the loan for the combination of the
two. These were put into rated transactions and sold to
In June of 2005, I testified at an informal hearing before a special NAIC committee and said that investor-ini-tiated life insurance was a problem. The way to address
that problem was through the life settlement acts. What
happened is that the opposition to life settlements—the
carriers—were very aggressive up though 2005, before
there was any issue of STOLI. Then, I had two carriers
approach me to see if we could develop some type of premium finance program that would lend on market value
instead of surrender value. The carriers were interested
in doing that. Why? Because they sold more insurance.
One carrier actually wanted a share of the commissions
from the policies sold. And initially it was set up that way
until I said, “We won’t do this.” Then we had two different carriers approach us. Interestingly enough, they have
been two of the carriers that are most aggressive in op-
So, for a limited period of time, the carriers successfully
conflated the two and literally they would talk about life
settlements and refer to them as STOLI. Carriers also prohibited their agents from getting involved. In terms of how
we get past that, the carriers have tried to promote STOLI
by definition as a policy that is taken out with the intent to
sell. Most laws that have now been passed talk about an
agreement to sell and most court cases have come down
on that side. Carriers have generally done poorly in the
litigation; they have had a couple successes but have generally done poorly. It’s just a matter of telling the story.
At the end of the day, any transaction that benefits consumers will have legs. To differentiate between a life settlement and STOLI is something that we can do, and we can
show examples. There are 10 carriers that have put out
statements either in the form of press releases or in their
10-Ks that say STOLI is no longer a problem, but those same
carriers work in the public arena to say STOLI is a problem.
Where carriers have had success is in intimidating
capital. I think PR is just a matter of getting the truth out
and we are doing that increasingly. STOLI impaired the
growth of the market partly because people in the secondary market did not do enough to facilitate the organic
growth of the market, to be out there educating agents. We
have to tell the story. No more than one percent of agents
have ever done a transaction and less than 10 percent
really know about them and many don’t understand them
because of the propaganda they have heard.
The growth of the industry
is dependent upon consumer
awareness. What is your plan of
attack for that?
I wear two hats. I am the CEO and co-founder of Coventry,
and we have always done a lot of marketing, training and
providing continuing education. We have had over 30,000
agents, financial planners, attorneys and accountants get
CE credits over the last decade.
The other hat is that I am now the chairman of the Life
Insurance Settlement Association (LISA) and the focus is
on education. Education of advisors , consumers, legislators, regulators and life insurance carriers. Not long ago,
I spoke to the CEO of a large life insurer that did not know
that when we buy a policy, the proceeds upon policy maturity are taxable. The lack of real knowledge of the secondary market within the life insurance executive community
is startling. It is fundamental knowledge.