Phoenix Now Buying Policies
Phoenix enters the Life Settlement Market…
The Phoenix Cos. isn’t just selling life insurance policies anymore. It’s buying them.
The Hartford-based company said Tuesday it is entering the “life settlement” market, a growing business that has seen some abuses.
Life settlements are a way for people who no longer want or need their policies to sell them for cash in a secondary market — typically to companies other than life insurers.
Consumers get more money through a settlement than the cash value they would get by surrendering the policies to the life insurers that originally issued them. What consumers get, though, is less than the policy’s death benefit. The new owner of the policy pays premiums until the consumer dies, then collects the death benefit.
Phoenix Life Solutions will work through four brokerage general agencies to offer settlements on policies with a face value of $500,000 or more — even some of its own policies.
Phoenix and Transamerica have found ways into the life settlement business, and more insurance companies are expected to enter the market, by offering settlements or services related to them.
“We believe pretty strongly that in three years, most of the players in the life settlement business will be life carriers, and we’re bringing it home,” John K. Hillman, president and chief executive officer of Phoenix Life Solutions, said in an interview Tuesday.
“We don’t see the secondary market as a threat; we see it as a tremendous opportunity,” Hillman said.
Life settlements are a legitimate business. However, insurers and regulators are concerned about “stranger-originated” or “investor-initiated” policies that end up in the settlement market.
A stranger or adviser convinces a consumer to buy insurance that the stranger couldn’t legally buy on the consumer’s life because of states’ “insurable interest” laws. The consumer agrees when buying the policy to sell it after just two years and may be offered financing of the premiums so he or she doesn’t have to pony up money in order to profit. The consumer may get an up-front bonus to participate in the scheme.
Some states’ legislatures including Connecticut’s are considering tougher laws against such schemes.
One reason insurers don’t like stranger-initiated life settlements is that insurance companies count on a lot of their policies lapsing or being surrendered for cash value, so the death benefits are never paid on them. Stranger-initiated deals, though, make it fairly certain the insurers will have to pay death benefits on the policies involved.
Phoenix says it will be diligent in settling only policies that were purchased to meet insurance needs, and will disclose compensation paid to the various parties in a settlement.
Phoenix, for instance, won’t settle policies that are under 30 months old because the problematic ones are typically settled right after two years have elapsed, Hillman said.
He faults middlemen and bloated fees paid on settlements for also tarnishing the settlement industry.
“It’s a very inefficient execution chain, and there’s way too many people in the middle and there are some egregious elements of compensation because it’s very opaque,” Hillman said.
“We have committed absolutely to have transparency, with the seller of the product seeing where every dollar of compensation goes,” he said.
Phoenix will base fees only on the amount of a settlement that exceeds the cash surrender value of the policy, Hillman said. Phoenix Life Solutions will get 5 percent of that amount. The brokerage general agencies will get 20 percent, passing on some of that to the agent or adviser who brought in the settlement client.
Phoenix Life Solutions is a growing business and will also offer other services, he said. Currently the unit has 10 dedicated employees — two in Hartford and the others in Plymouth Meeting, Pa. — and additional Phoenix employees spend some of their time on the new business.
The brokerage general agencies Phoenix is using for its settlement business are Advanced Planning Services in San Diego; American Brokerage Services of Wyndmoor, Pa.; Ash Brokerage of Fort Wayne, Ind.; and Madison Brokerage of Morristown, N.J.
Source: Diane Levick with Courant
