Three key tailwinds behind US life settlement growth

by Leo Almazora30 Jan 2019

It’s been said that insurance, at the most basic level, is a bet against oneself; after all, it typically pays off when some specified unfortunate event happens to the policyholder. Many life insurance buyers, however, have ended up “losing” their bets because their policies lapsed due to non-payment, or they voluntarily terminated their plans in exchange for a less-than-ideal cash surrender value.

In recent years, however, policy holders have explored alternative ways to maximize the value they get. One such option, which currently isn’t available in all Canadian provinces, is to sell a policy to a third party via a life-settlement transaction.

Canada’s life-settlement market follows in the footsteps of the US, where the volume of transactions increased by a reported 23% in 2016 and a further 19% in 2017. Based on one estimate by global investment management firm Conning, US life settlement volume will increase by 1% to 2% from 2018 to 2027.

But according to US-based firm Magna Life Settlements, that projection is too conservative. “In Magna's 2018 Life Settlement Industry Report, we projected a 34 percent increase in the settlement volume,” wrote Senior Vice President Clay Gibson in a piece published on InsuranceNewsNet.

One factor supporting the Magna forecast, Gibson said, is the aging US population. Citing data from the US Census Bureau, the Conning report noted that the number of Americans older than 65 will swell by 38% from 2015 to 2025. All age brackets including those aged 70 and above are also projected to undergo double-digit compound annual growth.

“Additionally, one out of every two people over the age of 65 has at least one life insurance policy,” Gibson said. “By 2030, one in every five Americans will be retirement age and looking for retirement income.”

The growth of the life-settlement space has also driven a streamlining of the settlement process, he added. Allowing consumers to pursue a settlement quote and get to a sale more directly can eliminate intermediary fees. At the same time, technological growth and an industry push to make the life-settlement process more efficient can make life settlements more accessible than ever for retirees looking to tap their policies for income or cash.

Finally, Gibson noted that awareness of life settlements has increased because of providers’ broadened efforts to educate seniors with unwanted or unneeded life insurance policies. Because of new legislations and tax reforms in the US, he added, senior consumers are in the driver’s seat.

“Regardless of the differences in projected industry growth, experts agree that the future is bright for life settlements,” Gibson concluded.