But How Big Is It?

No one really knows the industry's size. The providers are privately held companies. States don't have the data. And there is no central clearinghouse through which all settlements run, says R. Steven Orr, president of Baltimore-based Life Settlement Providers LLC and a former Maryland insurance commissioner.

Despite the lack of hard numbers, LISA estimates that in 2007, $15 billion of policy face value changed hands, up from $12 billion in 2006. A much more conservative figure for 2006-$6 billion-is offered by Conning Research & Consulting, a Hartford, Conn., firm that has studied the industry since 1999. There is widespread consensus, however, that the business is growing.

Until recently, advisors had just two ways to sell a client's unwanted policy. Keeping in mind state insurance-licensing laws, of course, you could solicit bids directly from providers, or engage a broker's broker to do it. Now alternative venues are showing signs of life, the latest of which by the time you read this could be Institutional Life Services, an electronic marketplace backed by Goldman, Genworth Financial and National Financial Partners.

Each approach to helping a client sell a policy features unique pros, cons and how-tos for the advisor. Yet the goal is the same for all of these paths: to create a competitive bidding environment for the policy.

Going Direct

The proportion of advisors, attorneys and other financial professionals who approach providers themselves is rising. "Maybe 5% of our deals came in that way when we started in the business in 2004, and 95% through a broker's broker," says Stephen Shapiro, president and CEO of Q Capital Strategies, a provider based in New York and Boca Raton, Fla. "Now it's 30%/70% and that will flip in time."

There are two significant benefits: the client avoids paying a broker's commission and you avoid giving another practitioner access to the client. But to land the best deal (read: fulfill your obligation to the client), it takes legwork and a feel for the market. "You need to know what providers want, which ones are being aggressive and what constitutes a good offer," says Orr. Some advisory shops bring specialists in-house to handle the task.

The first step in going direct is to identify several providers (to engender competition) whose buying criteria regarding policy type and size, the insured's life expectancy and so forth match your case's characteristics. For example, Orr's company buys variable life; Maple Life does not. Orr only looks at cases with life expectancies between two and 10 years; Maple Life goes out to 20 years.

Once it's clear who will play ball with you, you could discover that some are more enthusiastic than others. "When a provider builds a portfolio of policies, he doesn't want too much exposure to any one carrier or health condition," explains David Kleinhandler, an independent insurance advisor in Manhattan. For instance, policies on cancer patients might be desired if the portfolio already includes numerous heart-disease cases. The provider may therefore be willing to pay a premium for what he needs to complete the portfolio, Kleinhandler says. "We try to find out who has the hot money for the client's potential health problems, then negotiate with two or three buyers. It all boils down to competition for the policy."