Convergence of Life Settlements and Long Term Care: A Funding Solution Emerges

 

An interview with Chris Orestis, President of Life Care Funding Group

Chris Orestis, president of Life Care Funding Group, is a 15 year veteran of the insurance and long term care industries.  Over the course of ten years in Washington, D.C. he worked in senior positions for the Health Insurance Association of America (HIAA--now reconstituted as AHIP), and for the American Council of Life Insurers (ACLI).  His first professional exposure to the life settlement market came in 2005. Since 2007, Life Care Funding Group has been working exclusively with some of the largest national chains of nursing homes and assisted living properties across the United States.  These companies have been informing families about a life settlement as a funding option if their loved one owns a life insurance policy that they are planning to surrender or lapse.  Life Care Funding Group then works directly with the family to educate them about the process and represent them if they decide to pursue a life settlement for their policy.

Q: How did you first decide to work with the “Senior Living” industry?

A: I have been involved in the “Senior Living” industry for most of my adult life.  The need for private sector solutions to combat the growing long term care funding crisis has been building for years now.  The Baby Boomers are now hitting the system and they are unprepared financially to handle the costs.  It was very obvious to us and the “Senior Living” industry that the proceeds from a life settlement could be put to very good use helping seniors secure the best possible housing and/or long term care.

Q: How many Senior Living companies are you working with?

A: Life Care Funding Group works with close to 100 companies of various sizes using our “Funding Solutions for Senior Living” program.  Together these companies have over 2,500 facilities with an average occupancy of 100 or more beds.

Q: What is the typical profile of the policy holder you would encounter?

A: The vast majority of policy holders we encounter would not be considered high net worth.  These are people with policy sizes under $500,000 and who have owned their policies for 10-20 years.  They have reached a point in their lives where they have a pressing health care issue and are discovering that the costs associated with long term care are beyond their means.  Typically they are about to either surrender or lapse their policy and had no idea that a life settlement is a much better alternative.

Q: How has the life settlement market responded to “middle market” policy holders?

A: We actually have been surprised to discover that the majority of Providers are not interested in middle market policy holders.  These “funders” would rather deal with much larger policies and are not that interested in smaller face policies even though the market size is enormous.  We have found it takes private funders that want to specifically focus on this market and the unique aspects of underwriting seniors in “Senior Living” environments to make it work.

Q: What are some of the challenges you encounter working in this environment?

A: Other than the general lack of interest in small face policies by traditional Providers, we have found that it takes a great deal of work and systems to support such a large cross section of facilities.  We have also found that the current lack of electronic medical records (EMR) across the health care system causes big delays in underwriting, but we are encouraged to see adoption picking up in the health care industry in concert with stimulus dollars made available through TARP.

Q: Are there other ways to help seniors in this circumstance with their finances?

A: Yes, life settlements are not the only approach.  We emphasize that families understand all of their funding options and also educate them on things such as policy loan programs, the VA Aid and Attendance health care benefit, senior credit programs, reverse mortgages, and long term care insurance.  We also make sure they understand how Medicaid and Medicare work in the total picture.

Q: The life settlement industry tends to get a bad rap, what has been the reaction to your approach?

A: We have been very pleased to see the favorable coverage we have received in the press and also in state capitols.  There have been numerous stories written about our approach and we were also gratified to see states such as Maine, Washington and Oregon enact legislation forbidding the insurance industry from suppressing information about the life settlement option for seniors.

Q: What does this “convergence” potentially mean for the future of the life settlement industry?

A: We believe this growing convergence is positive for the industry from a couple of perspectives.  First, life settlements are being used for a positive purpose by helping seniors cover the costs of long term care.  The industry is well served to show that life settlements can be done for reasons beyond just profit.  Also, it is an opportunity for state Medicaid programs to reduce expenditures by prolonging spend down periods for seniors before qualifying for coverage.  Lastly, it is an opportunity to tap into a massive market that so far has been ignored by the industry.

Q: How do you see today’s market conditions for the life settlement industry? 

A: There is no doubt that the impact of the economic crisis made the second half of 2008 and 2009 tough for the industry.  Although we don’t necessarily participate in the traditional life settlement marketplace, it appears to us that funding is coming back into the secondary market and a real recovery could be in swing by summer.  The industry is going to need to find new sources of policies now that the world of STOLI has just about been brought to an end.

Q: What are your opinions about the regulatory environment for the life settlement industry?

A: We are in total agreement with LISA and ACLI that there is no place for STOLI based transactions and we applaud their efforts to bring it to an end.  As legislation has been enacted across the country we have seen a consistent recognition that life settlements of policies established for reasons of true insurable interest are not being impeded.  For people with a pressing reason for liquidity, such as the population we serve, it would not be fair and in fact a violation of constitutional law to put up artificial barriers impeding peoples’ ability to access the value of their personal property.

Q: There has been a lot of talk about securitization and the possibility that it could lead to another economic crisis like the sub-prime mortgage debacle.  Do you see that as likely?

A: We see that more as an interesting story to sell newspapers or as fodder for groups that want to use misinformation to impede people’s access to the secondary market than as a likely outcome.  At some point the successful securitization and trading of life settlement pools is quite possible.  But the idea that this niche market could undermine one of the world’s largest industries and the U.S. economy is at the vey least disingenuous hyperbole being used to serve other purposes.

Q: What are your predictions for where the market could be in five or ten years?