Conversation With Steve Shorrock
Life Settlements: Consumer-Friendly Up, Down and All Around
(Financial Advisor magazines, March 2007)

The Advisor sat down recently with Steve Shorrock, one of Long Island’s best known life insurance personalities. The former President and CEO of Bankers Life of New York now runs two companies: LifeVentures Corp, which designs new life insurance products and develops marketing concepts for agents, and Select Life Settlement Corporation, a life settlement firm that brokers seniors’ unwanted or unneeded life insurance policies. You can reach him at 631-239-6656.

Advisor: You’ve been an insurance man your entire career, held some lofty positions and even developed a variety of new products. Why are you now into life settlements, which many in the insurance industry view with disfavor? Some would say you’re turning on the industry that fed you.

Shorrock: No way. We’re not turning on the insurance industry; we’re enriching it. There is a lot of misunderstanding about life settlements; a lot of misinformation out there. Truth is that, when done properly, life settlements are good for the consumer--up, down and all around. They’re good for the life insurance companies, too.

Advisor: How so?

Shorrock: For one thing, about half of the proceeds from life settlements are being used to buy new life insurance. What’s more, a strong secondary market will make life insurance a more attractive product. Having a potential “exit strategy” will ultimately encourage more people to purchase life insurance, buy bigger policies and hold on to them longer. It will open the door to new products that focus on “living” as well as death benefits. One of our companies, LifeVentures Corp, has developed a product that incorporates a potential life settlement within a life policy that is triggered by a long-term care need.

Advisor: What do life settlements do for the agent or advisor?

Shorrock: Besides the commission on the life settlement proceeds, they could generate a commission on a term policy conversion and renewal commissions on the permanent policy for the life of the insured. But let’s not think in terms of the immediate transaction. Let’s look long-term. The insurance companies have always emphasized product and have not worked with their agents on strategies. The life settlement option gives the advisor a planning strategy. The time will come when life settlements will be built into life insurance polices – like we’re doing at LifeVentures Corp under our trademarked product concept Life For The Living.

Advisor: If life settlements are the prelude to such great things, why are the insurance companies beating up on them?

Shorrock: They don’t yet appreciate the potential but they will. The problem now is that life settlements are being tainted by something called “non-recourse debt.” A financing organization will approach an agent who has, say, a client 75 years old, a net worth of $3 million and $500,000 worth of life insurance. He offers a $2.5 million policy free and 2 to 5% of the death benefit up front. The client pays no premiums and finances the premium forever until he dies, at which time the finance company collects the death benefit. This is a bad deal. The insurance is written for the sole purpose of selling it to an investor. Non-recourse: We don’t care if you default; we’re going to sell that policy. It’s stuff like this that taints the market, and taints the industry. I have been one of the most vocal speakers against these kinds of deals which unfairly link life settlements with premium financing when, in reality, there is no link at all.

Regulation will eventually clean up all this. We all agree there should be a way to regulate this non-recourse financing, but it should be in its own separate bucket, not the life settlement bucket.

Advisor: You recently put on a premium financing seminar. Why did you do that if there’s no link between life settlements and premium financing?

Shorrock: To clear up the confusion. Financing is a mechanism to buy more insurance; a life settlement is a mechanism to sell unwanted insurance. We had the seminar to show how premium financing can benefit the high net worth client who needs insurance but has no liquidity.

Advisor: It’s not just the companies who are objecting to life settlements; broker/dealers have problems, too.

Shorrock: They’re saying they could be securities once they’re sold. To address those concerns, we have a loan option avaliable. Instead of selling the policy, a loan is provided that pays a life settlement upfront to the client, funds all the premiums and possibly provides a back-up death benefit if the insured dies at or prior to his/her life expectancy.

Advisor: To what do you attribute the sudden and rapid growth of life settlements?

Shorrock: A growing number of investors dealing in mixed groups of life expectancies instead of just short life expectancies. Investors are seeing life policies as a good asset class. They’re being held on the books of highly reputable firms and even traded as funds for small investors.

Accounting changes have also contributed. Historically, when an investor bought a policy, he had to carry it at the cash surrender value. Now he can carry it at the market value.

Advisor: What’s the potential for life settlements on Long Island?

Shorrock: Huge. We now have over $100 million in death benefits for which we are pursing settlements. One insured outlived his beneficiaries. So he’s selling a policy and donating the proceeds to charity. It’s a wonderful use of an asset he doesn’t need or want anymore. We’re also working on a settlement where the proceeds will fund a couple’s long term care needs instead of putting them in the poor house. That’s why I say life settlements are consumer-driven.

Advisor: As a life settlement broker, what do you say to agents whose companies won’t let them have anything to do with life settlements?

Shorrock: Agents have a fiduciary responsibility to discuss the life settlement option, so you may see some litigation. Most of the agents doing life settlements are independent, so they can do what they want.

Advisor: The regulators, politicians and even many insurance people speak of life settlements in the same breath as viaticals.

Shorrock: The viatical market involves short life expectancies. Life settlements grew out of viaticals when people began to realize that a longer life expectancy was more common. Viaticals are a world we don’t live in. In most of those cases, the policy holder should do everything possible to keep the insurance.

Advisor: Why do you insist that agents give you exclusivity and not shop their life settlement cases to a number of brokers?

Shorrock: Because everyone takes a case to the same group of providers. If the providers don’t know who controls the case, the agent’s client won’t receive the best offer. Each provider represents a variety of investors who have different preferences and priorities. You can get an early offer of $1 million and wind up with a final offer of $1.8 million. It’s like an auction. An investor may want a particular policy to achieve certain objectives in the portfolio. With a group of brokers all pitching the same policy, you don’t have this negotiating strength. While it might appear on the surface that it pays to "shop around," it often winds up producing an inferior offer, or no offer at all, because investors are unwilling to tie up money on a deal that can't be delivered.

Dealing exclusively with a single provider is unwise as well. They have no responsibility to the insured, and will only offer the policy to their own funders.