Underestimating Life Expectancy could hamper growth of a profitable LS Exchange.

Summary

In my view future prospects for a Life Settlements exchange will be significantly hampered by life expectancy uncertainty.

Trading debt is not the same as trading lives, Industry players are reliant upon industry models which have continuously underestimated life expectancy and medical examiners who have consistently assumed individuals will die relatively quickly from whatever ails them.

Regulatory scrutiny of a transaction whereby a third party makes a return based on someone else’s life span will also hamper the growth of a simple exchange mechanism, especially as generally the longer the individual lives the less profitable the policy for the third party.

Analysis

Assessing Life Expectancy has played havoc with life industry profitability over the last few years.  The only thing we can establish with certainty is that any estimates of life expectancy  have proved to be consistently under-estimated.

In the UK the issue has manifest itself in the wholesale withdrawal of defined benefit pension schemes, poor returns from with profits policies, problems with endowment mortgages, the debacle at Equitable Life and in the growth of Resolution.

Trading Life Settlements easily  and profitably depends on being able to assess individual life espectantly consistently, efficiently and accurately. This is a big ask.