Letters
ALLOFASUDDEN,ITSEEMS,LIFESETTLEMENTSAREONEVERY Atonetime,IthoughtIwassimplymoreattunedtotheissuebecauseof inFebruary,theWallStreetJournalpublishedanarticlepredictingthat wouldbethenextsubprimecrisis.ATVshowusedlifesettlementsa formurder.Andabookwaspublishedwithlifesettlements,onceagain, motiveformurder(seePage24forareview). InMay,whentheLifeandAnnuitiesCommitteeoftheNationalAssociationofInsu anceCommissioners(NAIC)heldapublichearinginWashingtononstranger-originated lifeinsurance(STOLI),theAcademyjoinedotherindustryrepresentativesinspeaking outinfavorofregulatoryreforms.Butitwasn’tthefirsttimetheAcademyhadfocused ontheissue.Morethanayearago,theAcademy’sLifeProductsCommitteedecidedlifesettle- mentsneededtobecoveredfromanactuarialperspective.Ibecamechairpersonof theLifeSettlementsWorkGroup,whichassumedthetaskofwritingaconsumerguide onlifesettlements.Ourtargetaudiencewasseniorcitizenscontemplatingsellingalife insurancepolicytheynolongerneeded. Mimickingthequestion-and-answerformatthatweusedincreatingtheconsumerguid (which,whenit’scompleted,willbeavailableontheAcademy’swebsite),I’dliketodescr theprocesstheworkgrouputilizedasitdevelopedthedocument. YOU BET YOUR LIFE Advice for the Wary Consumer BY LINDA LANKO WSKI Whatdoconsumers(policyholdersandinsured individuals)needtoknowaboutlifesettlements? Ourworkgroupspentalotoftimediscussingthisquestion.We weretryingtokeepthedocumentneutral—nottakingastand onwhetherlifesettlementsaregoodorbad.Muchofthecon- troversysurroundinglifesettlements,therefore,isn’tpartof ourguide.Althoughwementionbuyingapolicyfortheexpress purposeofsellingittoaspecificinvestor,andexplainthatthis breaksthelawinmoststates,wedidnotincludeconcernsabout stranger-originatedlifeinsuranceinourguide.Wepreferred, instead,tofocusonthebasicsofthetransaction,theplayerswho areinvolved,thefinancialconsiderations,andwhathappensto thepolicyafteritissold. Whatisalifesettlement?Onthesurface,lifesettlementsaresimp insurancepolicyhasbeeninplaceforsom nolongerneedsthepolicy.Heorshesellsittoaninvestor,who continuestopaythepremiumsandreceivesthedeathbenefit whentheinsuredindividualdies.Theinvestmentreturnde- pendsonthelifeofthatindividual.Deathinonlyafewyears leadstoalargereturn,whilealonglife,requiringalongpre- miumpaymentperiod,leadstolowerinvestmentincomefor thesamesettlementprice.Whileourconsumerguideindicatesthattheinvestorexpects theinsuredtodiemorequicklythantheinsurancecompany does(theinvestorhasmoreup-to-datehealthinformation),the 22 CONTINGENCIES NOV|DEC.10 WWW.CONTINGENCIES.OR
Break-Even Formula
Iwas pleased to see the two articles aboutlifesettlementsinthe November/
December issue of Contingencies (“You
Bet Your Life: Advice for the Wary
Consumer” and “Actuaries and Life Settlements”). I hope this reflects a growing
awareness in the profession of its responsible role in this significant economic
activity.
I continue to believe that one missing
piece in the regulation of this activity
is effective economic value disclosure
to the policyholder. I wrote a letter to
Contingencies, published in the May/
June 2005 issue (“Break-Even Formula”), proposing a simplified disclosure
methodology somewhat similar to the
interest-adjusted cost index required by
state regulation in life insurance policy
illustrations. I hope the actuarial profession will take the lead in filling this gap.
Dwight K. Bartlett
Annapolis, Md.
Retire Like an Actuary
I’m happy to see that Bob Rietz has joined Sam Gutterman on the End Paper beat. I’m sure that his experience
as a retirement actuary, member of the
ABCD and many other professional
committees, and now his experience as
a retired retirement actuary, will provide
excellent grist for the End Paper mill.
His first column, “The Hardest Thing
I’ve Ever Done” (September/October
Contingencies), addresses an issue that
is near and dear to me as I retired on the
same date—and at the same age—as Bob.
I agree with his assertion that
developing a strategy or
budget for spending one’s
accumulated savings during
retirement is both a com-
plicated and critical part of
retirement planning. Its im-
portance will increase given
the declining sponsorship
of defined benefit plans. I
also agree that there are no
guarantees (not even for
pension actuaries with so-
phisticated spreadsheets)
Best in the World?
Iam compelled to respond to Eric Cly- mer’s letter (“The European Example”)
in the September/October issue of
Contingencies. His continued crusade against
the health care bill is based on emotional
language and a profound lack of rigor.
He states that the U.S. health care
system is the best in the world but gives
no analysis to support his assertion. We
all know that mortality rates in the U.S.
are high compared to most countries
with a single-payer system. Whenever I
point this fact out to proponents of the
U.S. health care system, they quickly argue that this is because of poor diet, lack
of exercise, a heterogeneous population,
etc. My response is that these are simply
excuses—Europeans smoke heavily but
still have lower mortality.
If the U.S. health care system is so good,
it should find solutions, not make excuses
for poor mortality outcomes. The primary
measurement of success for a health care
system is its ability to keep people alive, so
I contend that the U.S. system is not even
close to the best in the world.
Mr. Clymer goes on to describe his fear
of impending bankruptcy for the nation.
In fact, it is the current health care system—with annual double-digit increases
in premium—that has driven thousands of
individuals and small businesses into bankruptcy. Also, Mr. Clymer should note the
fear of those who lack insurance, those who
have the misfortune of having preexisting
conditions, and those who are unemployed.
They fear dying a preventable death because they lack health insurance.
May I suggest that Mr. Clymer
alleviate his fears by working toward addressing the failings he admits exist in the
U.S. system—cost, portability, and access
to care. While the health reform bill is by
no means perfect, blocking every attempt
at change is not a means for addressing
what ails the existing health care system.
Sharwin m. Kersh
