NEW YORK - A recently released study that is highly critical of the life settlements industry is flawed because of its limited data and the vested interest of the insurer that paid for it, according to executives in the life settlements industry.
The bulk of the funding for the study, "The Life Settlements Market - An Actuarial Perspective on Consumer Economic Value," came from Massachusetts Mutual Life Insurance Co. in Springfield and was conducted by New York-based Deloitte Consulting LLP. The study looked at New York settlements entered into between 2000 and 2003.
"There has not been any credible rebuttal by the life settlements industry," said John Skar, MassMutual's senior vice president and chief actuary. "They haven't come back with any data that contradicts what's in the study."
Mr. Skar said that the study was partly intended to be a response to a recent increase in marketing materials sent to MassMutual agents by life settlements companies.
"The study included settlements only in New York, which has a limited number of providers because it is one of about 23 states that regulates this business," said Stewart Shannon, managing partner of Money For Life, a life settlements brokerage firm in Bethesda, Md.
The study never mentions how many policies were analyzed, said Scott Page, president of The Lifeline Program, a life settlements firm in Tucker, Ga. Lifeline recently developed an advertising campaign and video, featuring television star Betty White, designed to educate the public on the benefits of life settlements.
The study looked at policies, sold over four years, with just $225 million in face value - a tiny fraction of the estimated $24 billion sold annually, Mr. Page said. He speculated that the data could have come from just one company that chose to participate, as the data studied isn't required to be reported under New York law.
Mr. Skar said he doesn't know the number of policies that were analyzed but that whatever public information was available was used. He added that he isn't fazed by having Ms. White on the other side of the controversy.
MassMutual indicated in a statement accompanying the study's release that the results statistically were significant enough to show that, on average, the economic value of policies sold in New York during that period was 64% of the face amount. Life settlements companies paid out 20% of the policies' face amount, meaning that 44% was lost due to the transaction costs - including expenses, taxes and profits - involved in the sales, the study noted.
Some life insurers have a vested interest in discouraging life settlements, because they would rather have the policy lapse and owe the policyholder only the cash surrender or account value rather than pay the much larger death benefit, Mr. Shannon said.
"The insurance industry wants policyholders to keep paying premiums even if they go broke in the process," Mr. Page said. "Consumers are well served by financial advisers who advocate life settlements."
"The life settlements people can't have it both ways; they can't say we'd rather have the policy lapse and that we also want people to continue paying premiums," Mr. Skar said. "We advocate that policies be retained."
The study also concluded that policyholders with impaired health can maximize their estate value if other assets are liquidated and the life insurance policy is maintained until death.
It often makes more sense to keep a policy until maturity; no one will argue that point, Mr. Shannon said. "But advisers who ignore life settlements can be sued by clients for violating their fiduciary responsibility to know about and present all available options," he added.
"We don't want our agents giving bad financial advice," Mr. Skar said. "If a policy is a bad deal, then why would a sophisticated investor want to buy it?"