Betting Your Life

I've never been much of a The Wall Street Journal reader, though over the years I've had a subscription a couple of times. Then better sense gets me and I let it go. I never have felt I got my money's worth out of it. I'm just not that into it. Still, there is always a good article or two in there (the editorials are consistently horrific, by the way), and the free copy I snagged this morning at the Marriott had a good one.

Front page, below the fold, "An Insurance Man Builds A Lively Business in Death." The article really shares two key things with us. 1) The concept of "life settlements" as a booming industry, and 2) this guy Alan Buerger who has pioneered the concept (and is probably making a killing, pardon the pun).

(Funny Aside: Alan Buerger had the nickname "Ham" at some point in his life - I cannot imagine why they mentioned this in a WSJ article. Good grief. Not only was he probably ridiculed as a child, at the height of his success for being an "innovator" of the insurance industry, the WSJ has to drudge up "Ham." The poor, poor man.)

To summarize the concept of life settlements, it is simply an insurance business where you can sell your life insurance policy to an insurance broker or other interested 3rd party. This insurance broker takes a look at you, your policy terms, and estimates a present value of your life insurance policy. They pay you for it, take on your premiums, then cash it in when you die. In the insurance industry, this is quite an innovation, though I'm not convinced it has anything to do with "insurance" in any sense. Rather, it looks to me more like an exercise in speculation (which is actually referenced in the article too).

Anyway, for grins, I hit the web and got to Buerger's company, Conventry First LLC, to check it out. It is a relatively low-rent site, but has a nifty little function. It has a quick questionnaire that you can fill out to see if your policy is "likely or unlikely" to have a present value. They call it a Quick Qualifier and I gave it a whirl - not surprisingly, I'm "unlikely" to qualify.

(Interesting Aside: This morning when I actually Goggled "life settlements" to find his company, his website was at the top of the results as a sponsored link. When I Googled it again tonight to snag the links for the website, it wasn't there. I cleared and Googled a couple of times and it didn't come back - the article wasn't necessarily flattering in WSJ so I wonder if he pulled back a bit. Curious, curious. I found it on the third page of links.)

This quick qualifier tool really demonstrates some of the risk mitigation they've got in play. The first question starts with an age question. The "lowest" question asks if you are 62 or younger. This indicates that they are really targeting people that don't have many payments left until they get into the money. The type of policy matters too. Whole, term, etc. This quick questionnaire quickly filters out the basics - the risks are too high to Coventry of them making their money (or at least locking in their desired margin) for some people. With a quick questionnaire, 10 questions, they are discouraging me from contacting them. I'm too risky to them because I'm more likely to live longer than their financial models predict, and thus not achieving their desired return on the investment.

When you set aside the moral questions (and I think there are a few) you can see a company taking advantage of a risk-based industry (insurance), identifying an opportunity, assessing risk based on data, and pursuing the value with eyes wide open. What I like about this program is that it doesn't pretend to be anything other that what it is - a big bet on your life. At least it is honest, though perhaps a little unsettling.

For us, we can see what just a few risk-based questions can do. It isolates customers to just the critical few that they want. It keeps costs down, where Coventry would have to deal with many people (like me) looking to cash in but would not be a profitable (or at least as profitable as they would like). It allows them to focus on the policies that would be the most profitable, where they can really examine the return associated with the risk they assume - you living longer than you should according to their data. Fascinating! I love it!

Give it a spin and see if you are "likely or unlikely" to have a qualified case - maybe you can benefit from some speculation on your life by some unnamed investor. Regardless, it is a good example of risk assessment and mitigation worth giving some thought.