This morning’s Times headlines the newest Wall Street money grab: the securitization of life insurance settlements:
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
Here’s how it will works. A horde of ghouls will descend upon people in poor health. They will offer to pay them ready money for an assignment of their rights under outstanding life insurance policies, after which they, or the companies they represent, will pay the premiums, and collect when the person dies, the sooner the better from the point of view of the “investors”. These life settlements have been around for awhile:
But the industry has been plagued by fraud complaints. State insurance regulators, hamstrung by a patchwork of laws and regulations, have criticized life settlement brokers for coercing the ill and elderly to take out policies with the sole purpose of selling them back to the brokers, called “stranger-owned life insurance.”
Gee, who could have predicted that? This reeks of yet another credit default swap mess waiting to happen. Once again, insurance contracts being securitized. No doubt Congress will be stirred into inaction.
However, I pause to wonder about something else. Those of my readers (if I have any-readers, that is) that went to law school will no doubt remember a quaint notion called “insurable interest”. I actually brought up this concept years ago when I first wrote about credit default swaps, long before they helped bring our economy to its knees.
If memory serves, the courts developed the concept of “insurable interest” to prevent just this sort of thing, albeit on an individual basis. The thinking is that one should insure only those things in which one has an actual stake. As a matter of public policy, it is not a good idea to let my neighbor take out insurance on my life. He gains nothing if I continue to live, and quite a lot if I happen to die. Thus, the courts, at least in the dim and distant past, would refuse to enforce an insurance contract if the person making the claim lacked an “insurable interest” in whatever risk was being covered. Generally, speaking, the theory is that you should take out insurance only against things you really don’t want to happen, not those that you would like to see happen, or about which you are at best neutral.
These “life settlements” leave the “investors” with no interest in the continued viability of the covered persons, but every reason in the world to hope for their swift deaths. It gives these “investors” an interest not only in individual deaths, but in many deaths. It gives them an interest to oppose advances in health care and treatment, or in the distribution thereof. This is no idle speculation on my part, it is clear from the article:
But even with a math whiz calculating every possibility, some risks may not be apparent until after the fact. How can a computer accurately predict what would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed?
Well, we certainly wouldn’t want any of those things to happen.
So, in addition to the Health Insurance Companies, Republicans, and their teabagger dupes, we can look forward to the creation of an entire financial sector opposed to improved health care. Oddly enough, the only hope we have to nip this in the bud is the Life Insurance companies, who, thankfully, can smell a rat. If they can’t stop it then we will have to wait until the inevitable collapse of the market, following which we will have to bail out what can only be described as Investors in Death.
