Participants:
Chris Conway, Chief Development Officer, ISC Services
Vince Granieri, CEO, Predictive Resources
Phil Hall, Manager of Product and Business Development, Longevity Holdings
Sean Malone, President and CEO, Longevity Services
S. Jay Olshansky, Chief Scientist and Co-Founder, Lapetus Solutions
The life settlement industry in particular is a heavy user of life expectancy estimates and it’s an area that continues to undergo significant change due to the influence of new data, more complete data, and technology. Life Risk News’ Greg Winterton spoke to Chris Conway, Chief Development Officer, ISC Services, Vince Granieri, CEO, Predictive Resources, Phil Hall, Manager of Product and Business Development, Longevity Holdings, Sean Malone, President and CEO, Longevity Services and S. Jay Olshansky, Chief Scientist and Co-Founder, Lapetus Solutions to get their views on the current state of their sector, its challenges and opportunities.
GW: How accurate are life expectancy forecasts generally at this point in time when compared to, say, 10 years ago, and what can you point to that supports your answer?
CC: Accuracy is better and what’s driven that is time – those that have been around long enough have been able to build a body of work for statistical significance. But there are nuances to the notion of accuracy in our space. One is that even if you’re consistently wrong, an outside party can at least measure against you. It makes the product more useful to the user if you’re consistent and if you identify where you’re off or wrong, and why. You might only have seen an impairment three times, for example, and that might be the root of an inaccuracy – that’s not enough data at all to build into a model. If you’re consistent with how you approach comorbidities, and you’ve been able to do that long enough, you can demonstrate the efficacy of your work.
One other thing I’d mention here. We’ve been due diligenced only three times in the past five years. That’s probably because life settlement fund managers don’t think it’s necessary. But I’d say to any end investors reading this that given the role that LEs play in the life settlement space, they should drill down into this more. If they ask, managers will have to do it. Investors need to know what data managers are using to make their investment decisions.
PH: We obviously believe our life expectancy forecasts are very accurate. What’s driving that is decades of experience and data to test our life expectancy predictions; between our two underwriters, we’ve underwritten over 100,000 lives. Ten years ago, only around 7,000 of those lives had matured, which at the time made it difficult to assess specific performance. However, today, over 45k of those lives have matured, giving significant insights into how our underwriting has performed.
SM: LEs are more accurate now without a doubt and will likely be more accurate in another ten years. We need time to analyse historical data to improve our Actual to Expected results and we have better tools available for more comprehensive death searches now compared to just three years ago which means we can now update our A/E results quicker with better data to understand where we may be missing the mark. Obviously, our target is 100% A/E with minimal variability and having access to recent data gives us better visibility into performance.
VG: I’m going to nit-pick a little at the use of the word ‘generally’. LE accuracy is best measured company bycompany. Companies who have significant experience and accumulated data are in the best position to build appropriate tables and methods. Those who employ the appropriate disciplines: clinical underwriting, IT, and actuarial can build data-driven models and processes that generate better results. Some of the key modelling techniques, assumptions, even results we use in developing our tables and debits are identical to those of folks who are on the cutting edge of aging research. But while there are plenty of smart folks who understand underwriting or longevity, it‘s about properly applying those disciplines to the specific life settlement market that counts. We’ve talked a lot about having more data and that is vital, but it’s also important to remember that survival probabilities of certain diseases are rapidly changing as well, so it’s not enough to look backward. Having said all that, given 10 more years of data and experience, LEs are more accurate today.
JO: Accuracy is complicated. If 1,000 people come to us and asked, ‘how long are we going to live?’, you’re not going to know the answer to this definitively until they all die. It’s not possible to figure out a true A to E because you would have to wait too long. There’s also nuances like the range for accuracy. The state of Florida provides this range to LE providers, and most companies use that data. Let’s say it’s a 48-month range – if someone therefore dies between 18 and 22 months on either side of that point estimate, it’s considered accurate, so by that standard, accuracy is excellent. If you take a life table and look at the probability that someone will live for 20 years, they will be precise 5% of the time. The answer to this question is incredibly nuanced. But A to E is a complicated concept in the world of life settlements.
GW: In terms of the life settlement market, a trend prevails where fund managers are increasingly ‘insourcing’ the LE analysis function – i.e., doing it themselves. Is this something you’re concerned about or not, and why?
VG: I am reminded of an old TV commercial that involved some high-performance driving; it was later parodied by comics. The disclaimer at the end of the commercial – we are professionals, don’t try this at home! That’s not to say in-house underwriting can’t be successful, but I think folks understate the commitment it takes to run a successful underwriting program. I’m coming up on the tenth anniversary of founding Predictive Resources, and Roger [Tafoya, Predictive Resources Chief Underwriter and COO] and I were focused on life settlement underwriting for five years before that. Underwriting the human longevity risk has been my singular commitment for over 15 years. And mortality is forever evolving – 15 years ago multiple myeloma was a death sentence and lymphoma nearly so. Not anymore. Given the constant changes and the necessary skill set, data and focus to build an effective longevity practice, my advice is to be careful out there.
SM: No, I am not concerned with this trend. I understand that different fund managers have their own unique strategy or specialty and having underwriters in-house helps them implement that strategy. I think the diversity of risk appetites and approaches among the different fund managers makes the industry run efficiently, but it does not threaten LE providers. We believe we have the best underwriters in the industry and that our process yields consistent, high quality results.
CC: One of the challenges is that we know nothing about the credentials of the people doing that work in-house for the manager. Doctors are not trained to underwrite. Just because you’re a medical doctor, doesn’t mean you’re trained to assess LE in life settlements any more than an environmental lawyer can litigate a murder case. The in-house person might not have the tools and resources available to assess micro longevity.
It is possible that the information that an investor has access to, post purchase in the tertiary market, is vastly different to the information we have. We can’t assess what we don’t know and they are working with different data – they bought the policies they bought. Most don’t look back at what they didn’t buy to figure out if what they bought was what they should have bought. There’s a certain bias there because the manager chose the policy in question. If you didn’t choose a policy and the data related to it, you don’t know if that was the right choice, and a few thousand policies is not a large enough sample size versus what actuaries use in life insurance underwriting. I’m aware that managers are ‘in-sourcing’ but I haven’t seen a corresponding drop-off in demand and I think that’s because the managers still want an independent, objective offering.
JO: You have to ask the fundamental question about the expertise of the people that are doing the evaluation in house. If they don’t have the expertise, the peril is that the reliability is going to be way off. We don’t only use physicians; we use population scientists with decades of experience in survival analysis as well. I doubt that many fund managers have this level of expertise. Also, I’d question the trade-off of whatever it costs to do it in house, and how much time might be saved versus sacrificing reliability. And we turn something around in two and a half days – I doubt many managers do it faster in-house.
The other thing working to our advantage is that we have access to a vast medical and scientific literature and a history of learning from assessments that we have completed. We can go back and review any patient with impairments that are the same as the one we’re analysing now. That creates a level of consistency that’s important. And lastly, we have no vested interest in the LE being long or short. It is what it is. One of our clients once said to me that we tend to come in with shorter LEs — my response was that he should then stop sending us files on people that are very sick. If someone said they all seem to be long, my response would be to stop sending us so many healthy people. They are what they are. Firms like ours are independent third parties. In order for this industry to operate honestly you have to have independent LE providers.
PH: This is not something that concerns us – indeed this is something we welcome. It makes a lot of sense for investors, when deploying millions of dollars of capital, to hire their own medical staff to evaluate cases. But even when this is the case, we believe there will always be a demand for our products. Often, investors demand independent evaluations of life expectancy, to avoid any potential conflict of interest, or simply to get alternative views. Our underwriting products take differing approaches between doctor intensive medical underwriting and more data driven analysis. Investors can benefit from seeing underwriting being taken from different approaches to get a more complete picture on any given individual or block of lives.
GW: Are there any other industries besides the life settlement market that you are working in that you are supplying your life expectancy underwriting skills and capabilities to? If so, what are they, and what’s the opportunity set?
SM: We are focused on supporting the life settlement market only. We don’t want to get distracted by pursuing other industries at this point since there is plenty of work available for us in providing LEs for life settlements. If that were to change, then we might consider branching out to other industries.
JO: We are also on the front end of life insurance underwriting; we help insurance companies by providing assessments using remote tools based on AI. It’s all done online, there is no need for blood or urine, you get assessments in five minutes. The insurance companies then triage the individuals that require more detailed medical underwriting versus those that go through our accelerated process.
Wealth management is the other one. Survival and future health are at the foundation of planning for retirement. When considering the purchase of an annuity or insurance product associated with retirement, we provide rapid assessment of survival dynamics and help people and their advisors make better decisions for retirement. There’s also a gene that’s associated with longevity that we can detect as well, so we provide genetic analysis to the life settlement market to help with right tail protection.
PH: Yes, we’re also in several other markets. Our Fasano business has been active in the life contingent structured settlement space for a while and has also provided underwriting services to numerous life insurers for workers comp, life, and annuity underwriting. We have worked with a number of other different areas and industries where our expertise is applicable. We believe there are a wide variety of industries and businesses where our insights into senior mortality is applicable, and these are markets we intend to pursue over the coming years. The eventual goal is to use this dataset to both predict mortality with accuracy and reverse engineer methods to identify signals for elongated longevity.
VG: If you can underwrite life settlements, you can underwrite anything. Because there is no such thing as a rejected case in life settlements, the process, underwriting engine and other tools have broader applicability to several other spaces, including structured settlements, life underwriting and impaired risk annuities. We have been asked to build predictive models for the healthcare and assisted living markets as well.
CC: There are two markets we are attempting to attract. The first is the wealth management / financial planning space. The number one concern here for an individual, and therefore their RIA, is the fear of outliving the money they have to live on – classic longevity risk. The underlying work we do – assessing micro longevity risk – is applicable to that marketplace.
The second is the senior living industry. They are taking longevity risk that’s a bit different. This is a very large population, and it can be underwritten, so there is a possibility that an insurance product could be developed that is tied to longevity risk taken by the senior care industry that’s distinct from healthcare costs. Our industry could apply what it has learned here.
GW: What’s your view on the ‘insurtech’ space – specifically, technology firms funded by venture capital money – in relation to your sector. Are you incorporating any of the technology that some of these start-ups are developing and have you noticed any improvement as a consequence of this? If not, why not?
JO: We are always looking for something that enhances predictive power, we don’t rule anything out. If there’s some new wizard tool, I’m all ears. We’re scientists, after all, but we have to assess it to determine whether it works, how much it costs, how much value it adds relative to what we’re already doing. The science of epigenetics is the next big thing; biomarkers for risk assessment are potential game changers. We created one ourselves called facial analytics – you upload a photo and we can detect whether someone is a smoker or former smoker based on their face.
VG: Insurtech is an important sector for the entire insurance industry. But these new technologies are not just in the purview of startups – legacy carriers are very active as well. As digital health data became more prevalent, we have been able to leverage the new tools and models. We are constantly looking at new technologies and incorporating into our systems that help improve the quality of our LEs but also improve our processes and R&D. It’s important though, to understand that, like driverless cars, the promises of electronic health records disrupting the underwriting process may be further away than we think or hope.
PH: We have not been using any products or technologies specifically provided by “insurtech” firms, however we do strongly believe that using data and modern techniques such as machine learning and artificial intelligence can help improve our underwriting. Our team of data scientists and engineers use cluttering edge models to develop algorithms with predictive value.
Our ITM 21st business has already developed our Longevity Risk Model, which uses advanced machine learning techniques to find complex interactions between both medical conditions found through traditional underwriting and non-traditional sources of data such as consumer and environmental data. This allows us to gain deep insights that traditional underwriting and human review could never find. We believe these kinds of tools can lead to significant advances both in the life settlement space and other industries.
The dataset I mentioned earlier – over 100,000 lives and 45,000 deaths – has been a great asset to iterate predictive models. Insuretech firms have added a lot of value in P&C and health space for years, and finally are starting to add value in the life & annuity space. Insuretech firms with unique models will always be something we would consider partnership opportunities with.
CC: Most ‘insurtech’ is supporting the primary market, not the secondary market, and in the life space, a lot of the activity is enabling case management and moving through the process. We are employing some new tools and technology, but I wouldn’t necessarily describe that as insurtech. For example, we’re using more data ourselves which isn’t insuretech like you phrase it, but it’s based on technology. We apply human oversight to all of it because while there is a growing market for raw data, it’s a mess. It needs to be normalised, verified, and validated. A doctor might check the smoker check box, by mistake, and the non-smoker box later on in the records. We see this type of error all the time -producing useable health data in the US is still a very labour intensive, human interactive activity. But again, that’s not insurtech from the VC world’s point of view.
SM: We have to stay aware of whatever advantages we can gain by implementing new technology. We have already seen the benefits of automating chronologically sorting large medical files, which can be a tedious manual process. We’re keeping an eye on developments in the A.I. space, but right now we haven’t implemented anything from a third party insuretech firm.
GW: What are some of the challenges that the LE underwriting space faces at the moment, and what can be done to remedy those?
PH: Underlying health record technology is something that’s been discussed for a decade but has only seen marginal improvement. Electronic health records, in complete and accurate structured data, is something the industry has been promising but has not yet delivered fully actionable tools. Our process involves many layers of data cleansing and sorting that would not be required if electronic health records were fully available. Also, Covid showed us that unpredictable black swan events can impact mortality as well. These conditions are hard to predict, and it will take time to understand the long term impact and how that might affect future mortality assumptions and predictions.
SM: Our biggest challenge is managing the ebbs and flows of case volume in order to meet our goal of completing cases in 3-5 business days. We often get inundated with cases from multiple customers all at once and we have to work extra hard to complete our work without sacrificing quality or consistency. Another challenge arises from incomplete medical records. We may be aware that there are more current meds available for a particular case, and our turnaround time will be affected while we wait for our customers to track those down.
CC: The biggest challenge we have is that we cannot make any client, or the market, buy more of our services even if we could prove that they should because it’s very hard to gain market share other than by being the shortest LE in the market; there is a bias in the industry to try and figure out the shortest LE as that results in the highest price and nearly everyone is compensated in one way or another based on valuation.. There are also few, if any, barriers to entry. There are over a dozen companies purporting to do this work– it’s very difficult to explain to someone why company A is better than company B.
There’s also a difference of opinion about technology and how it can solve the problem we address in this business. We disagree that it’s a math problem for a couple of reasons. Access to information that we need to do our job is constrained at the source in terms of availability and quality and consistency; the belief that the healthcare system always gets it right is unfounded. That’s ongoing. The other constraint is a difficulty in differentiating between underwriting and actuarial activities. They are distinct. People perceive them as being the same. Actuaries consume the output and use that analysis to influence the work going forward. An actuary and an underwriter are not the same at all.
The third challenge is that what goes on in the general population does not have as much influence as people would like to believe on the selected population with which we deal. The process is driven by economics. We look at a microcosm of a microcosm. Larger population trends may have an impact, but they are not doing so right now and we’re not seeing that right now.
JO: I’m not sure about ‘challenges.’ I’d go back to the trend of fund managers doing life expectancy analysis in-house; that’s not something that concerns us because over time, those that do will face economic penalties from making mistakes. Then, they’ll come back to us. But there is a potential impact on the industry here. The life settlement market has to be an industry based on trust and honesty. Once you lose that trust then you have a reputational issue that makes the whole industry shrink. We and the other companies doing this are brokering in honest assessments. That’s the bigger picture challenge.
VG: A big concern is data integrity. When the Social Security Death Master File was purged a number of years back, it threw us for a loop. Without accurate deaths, there can be no accurate Actual -to-Expected analysis. Although third-party providers rushed in to fill the gap, the results were still incomplete years later. We recently developed a process which resulted in finding 20% more deaths than were conventionally found.
I’d also rank transparency as another concern. It’s very difficult to assess the quality of an LE for the same reason that it’s hard to judge whether a particular life insurance product is good – so much of what’s needed to do so occurs in the future, and by then it’s too late to do much about it. There is still asymmetry of information among players. In medicine, there’s something called outcomes-based health care, where the results drive the process. That’s a good thing. In life settlements, recently, I have seen a push toward outcomes-based LE provider selection, where industry players openly lobby for certain outcomes. I’m not saying that some healthy discourse isn’t appropriate, but it has become excessive. Unlicensed, inexperienced, and unqualified LE providers have entered the market with inaccurate or low quality LEs. Not all mortality tables are alike or appropriate; not all underwriting processes are either. The things I have already mentioned – focus, communication, transparency, and commitment – I’m hoping that they will help resolve these issues and others yet to come. And Chris hit on an important point – our world of life settlements is an alternative universe to the rest of society. It’s not the same socio-economic environment and doesn’t play by the rules that apply to the general population.
GW: What’s the outlook for the LE underwriting space in the coming 12-24 months; what will we be reflecting on this time next year?
CC: For the sector at large, hopefully there will be a movement on the part of life settlement businesses to focus on licensed, registered, legitimate operators and not continue to add more voices to the cacophony. But I think the life settlement market has proven itself to be more resilient to macroeconomic factors than most businesses and the volatility in the public markets is a tailwind will allow our industry to grow. As I mentioned, there is interest elsewhere in the world related to micro longevity underwriting. That diversifies our business and sector.
VG: We are at a very interesting time in that annual mortality improvement isn’t a given any longer. While we don’t yet know the exact role played by the Covid-19 pandemic in this phenomenon, it will be important to distinguish the pandemic’s effects versus those that may be more permanent (including long Covid-19). I feel good about our space, despite my above concerns. More than ever, long term players recognize the value of independent LE providers singularly focused on delivering the most accurate LEs possible and assisting them with their processing challenges.
JO: I’m anticipating significant growth in our space because players are doing a good job of educating consumers about the value of life settlements and that in turn drives our business. Most consumers do not understand they have a valuable policy that belongs to them that can help them address some of their unmet financial needs. Financial advisors are being educated on the value of life settlements as well. There are tens of thousands of them who are not familiar with life settlements and there’s been a concerted effort to do exactly that, and I expect an uptick in the number of policies coming to market in the life settlement world. I’m optimistic, so much so that I don’t know if we have the capacity to handle it.
PH: We think the biggest thing over the next year or two in the LE underwriting space will be seeing how the newer market entrants will evolve, and how willing they will be to share their performance and data. In many ways some of the newer market entrants are at the position our underwriters were in years ago. In the same way that we have made our data available to help investors understand our performance, we think it is going to be critical to see something similar happen with newer underwriters.
SM: It’s difficult to predict given the economic climate of high inflation and high interest rates, which can be opposing forces for different segments of the industry. For example, the secondary market will likely benefit from high inflation as more insureds feel the need to tap the equity of their life insurance policies. Conversely, the tertiary market may slow down with less capital inflows as borrowing becomes more expensive. Still, given the fact that more baby boomers are reaching ages eligible for life settlements, I think the industry will continue its upward trajectory in the years to come.
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Chris Conway is Chief Development Officer at ISC Services
Vince Granieri is CEO at Predictive Resources
Phil Hall is Manager of Product and Business Development at Longevity Holdings
Sean Malone is President and CEO at Longevity Services
S. Jay Olshansky is Chief Scientist and Co-Founder at Lapetus Solutions