Betty White Ad Shows Life Settlement Industry’s Attempt To Buck Niche Status

The life settlement industry is continuing to suffer after years of reduced investments, but the industry is working to fine-tune its image and become a more prominent part of retirement planning.

In a series of online ads featuring Emmy award-winning nonagenarian Betty White, the Lifeline Program is targeting younger life insurance owners, who may be familiar with White and are starting to think about retirement, said Stephen Terrell, senior vice president of market development and branding for Lifeline, which engages in life settlement transactions.

Of course, younger is relative, when discussing retirement planning, Terrell said. "The point of these ads was to get people between the ages of 45 and 50 to be entertained and to become curious about what life settlements are," he said. "And who doesn't love Betty White?"

The ads feature White, 90, dancing with shirtless men, repeating the refrain, "I'm still hot" to dance music. The ads close with the tagline, "Stay hot in your retirement. Consider selling your life insurance policy."

Terrell, who served as executive producer of the ads, said they aim to make life settlements more mainstream and generate demand. "We want to ensure that all of the options available to a person are laid out for them when they are planning their retirement or thinking about long-term care," he added.

Life settlement portfolios were battered by the economic downturn, which caused capital to dry up and fewer deals to be made. But at the same time, the industry was also faced with questions about how the value of life settlement portfolios should be calculated.

In 2007 and 2008, several life expectancy underwriters unexpectedly changed their methodologies, adding years to mortality projections in some cases. Industry observers said even a one-year difference on projected life expectancies can put millions of investor dollars at risk (Best's News Service, Dec. 10, 2007).

A recent estimate by Conning Research & Consulting, said with the billions baby boomers have in life insurance policies, the potential market could top $177 billion over the next 10 years. The report also found "the fundamental appeal of life settlements for certain policyowners remains. This appeal translates into a continued demand by individuals to settle their policies. The ongoing question remains as to whether enough investors will return to meet that demand."

Emmanuel Modu, managing director and global head of insurance-linked securities at A.M. Best Co., said the life settlement industry is still in flux after being buffeted by a number of economic pressures in recent years.

"There just haven't been many new entrants to the market, given the uncertainty that is out there," Modu said, adding life settlement firms saw their reputations tarnished after a spate of lawsuits alleging the industry was participating in so-called stranger-originated life insurance transactions. And as a result, dozens of states have enacted anti-STOLI laws to prevent such transactions.

As a result of those pressures, buyers can acquire distressed portfolios at greatly discounted prices. Private equity investors such as Fortress Investment Group and Apollo Global Management have bought life settlement portfolios for much lower prices than they would have brought in the past. Modu has said that appears to be suppressing the secondary market where the policyowner sells his life policy to another individual or entity (Best's News Service, May 16, 2011).

Darwin Bayston, executive director of the Life Insurance Settlement Association, said becoming more mainstream could prove a significant boost to the industry and help it to repair its reputation. "As an industry, we allowed ourselves to be painted by the STOLI brush. A lot of people participated in those deals, and many came from outside the life settlement industry," Bayston said, referring to agents and brokers and the policyholders themselves. "STOLI was wrong, and we didn't do enough to come out against these products which were the problem."

But while the STOLI issue has traditionally pitted life insurance companies and life settlement firms against one another, Bayston said life insurers could be the partner the life settlement industry needs to re-establish itself.

"Life insurance companies saw their financial portfolios hit like everyone else. As long as the long-term interest rates are going to stay low, portfolios of life settlements may offer an attractive rate of return of about 9% or 10% over the long term," Bayston said. In January, Federal Reserve Chairman Ben Bernanke said the Fed will not raise interest rates until at least late 2014.

To date, few if any life insurance companies have begun looking at life settlements for investments. However, Bayston said he is staying optimistic about the future.

"It behooves everyone to think about life insurance policies as having value. That value could appeal to retirees thinking about how to pay for long-term care. But it could also have value to the insurers themselves," Bayston said. "Rather than fight each other, we should be looking for ways to work together."

(By Jeff Jeffrey, Washington Correspondent: jeff.jeffrey@ambest.com)