Insurance Curator WASHINGTON — Regulators, industry trade groups, and consumer advocates are intensifying efforts this year to standardize valuation methodologies within the secondary life insurance market, a move aimed at safeguarding policyholders as the life settlement industry experiences a significant surge in institutional investment.
The push for consistency comes as the secondary market—where policyholders sell their life insurance policies to third-party investors for a lump sum—continues to expand. According to data from the 2024 Conning report on the life settlement industry, the face value of policies sold in the secondary market reached approximately $4.6 billion in 2023, with projections indicating steady growth through 2026. However, the lack of a uniform "fair market value" calculation has raised concerns regarding transparency and the equitable treatment of seniors.
The Valuation Gap
At the heart of the standardization movement is the discrepancy between how different providers and brokers value a policy. Currently, the "Life Settlement" value is determined by a complex interplay of the policy’s face value, the cost of future premiums, and the insured individual’s life expectancy (LE).
“The secondary market provides a vital exit strategy for seniors who no longer need or can afford their coverage, but the valuation process remains opaque to the average consumer,” said Bryan Nicholson, Executive Director of the Life Insurance Settlement Association (LISA). “Standardization isn’t just about making the numbers match; it’s about ensuring that the consumer knows they are getting a competitive and fair offer based on verifiable data.”
Under current conditions, two different LE providers may offer estimates that differ by 24 to 36 months on the same individual, leading to swings of tens of thousands of dollars in the valuation of a single policy. Industry leaders argue that without a standardized framework for these calculations, consumers are left vulnerable to "low-ball" offers that significantly undercut the secondary market’s potential.
Regulatory Momentum
The National Council of Insurance Legislators (NCOIL) has been at the forefront of this shift, recently revisiting the Life Insurance Consumer Disclosure Model Act. The proposed updates emphasize the necessity of informing consumers about the life settlement option as an alternative to surrendering a policy back to the insurance company for a minimal cash value.
“We are looking at how we can ensure the consumer is fully aware of the value of their asset,” said Representative Tom Oliverson, NCOIL President. “If a policy is worth significantly more on the secondary market than its cash surrender value, the consumer has a right to an objective valuation that isn't dependent on which broker they happen to call.”
Several states, including Florida and California, are currently evaluating legislation that would require more stringent reporting from life expectancy providers. These providers are the "underwriters" of the secondary market, and their methodologies are often proprietary. Regulators are pushing for "black box" algorithms to be more transparent to state insurance departments to ensure they are based on actuarial science rather than arbitrary discounting.
Institutional Growth and the Need for Stability
The influx of institutional capital from hedge funds and pension funds has increased the urgency for standardization. Large-scale investors require predictable models to manage their portfolios, and a fragmented valuation landscape is seen as a barrier to further market maturation.
Jay Jackson, CEO of Abacus Life, a prominent publicly traded life settlement provider, noted that the industry’s evolution depends on trust.
“As the market moves into the mainstream, the sophistication of our valuation tools must keep pace,” Jackson said in a recent industry summit. “Standardizing how we calculate the internal rate of return and how we disclose those figures to the policyholder is essential for the long-term health of the asset class. Consumers need to see the secondary market as a regulated, transparent financial service, not a niche alternative.”
Protecting the Consumer Interest
For consumers, the stakes are high. Statistics from the Insurance Information Institute indicate that nearly $200 billion in face value of life insurance is surrendered or lapsed annually by seniors aged 65 and older. In many cases, these policies have a secondary market value that is four to seven times higher than the cash surrender value offered by the issuing carrier.
Consumer advocates argue that standardization must include clear disclosures regarding commissions and fees. In some transactions, broker fees can eat into a significant portion of the consumer’s payout.
“Standardization of valuation must go hand-in-hand with fee transparency,” said Donna Sullivan, a consumer rights advocate specializing in elder finance. “If a senior is told their policy is valued at $100,000, but they only take home $60,000 after undisclosed fees, the 'standardized' value didn't really protect them. We need a 'Truth in Settlements' approach.”
Technological Integration
To achieve this standardization, the industry is increasingly turning to artificial intelligence and blockchain technology. New platforms are emerging that aggregate data from multiple LE providers to create a "consensus valuation." By using AI to analyze vast sets of historical mortality data, these platforms aim to reduce the variance in life expectancy estimates.
Furthermore, some startups are proposing the use of blockchain to create an immutable record of policy valuations. This would allow regulators to audit transactions more easily and ensure that providers are adhering to standardized formulas.
Looking Ahead
As the secondary life insurance market prepares for a projected 5% to 7% annual growth rate over the next five years, the pressure on the National Association of Insurance Commissioners (NAIC) to issue a formal white paper on valuation standards is mounting.
For now, the industry remains in a transitional phase. While top-tier providers are voluntarily adopting more transparent practices to attract institutional capital, the lack of a federal or uniform state-level mandate means that valuations can still vary widely.
“The goal is a market where a consumer can get a 'blue book' value for their life insurance policy just as they would for a car,” Nicholson said. “We are moving in that direction, but the collaboration between regulators, actuary firms, and providers needs to accelerate to keep pace with the market’s growth.”
As 2025 approaches, the industry expects more states to adopt NCOIL’s disclosure models, potentially forcing a de facto standardization as providers align their national operations with the strictest state requirements. For the millions of Americans holding life insurance policies they no longer need, these regulatory shifts could mean the difference between a forfeited asset and a significant source of retirement liquidity.