Technology advances are driving improved processes in all industries and markets, and the longevity markets are no different. Life Risk News’ Greg Winterton spoke to Mark Venn, Director at ClearLife, to learn more about his firm and how technology is impacting longevity investors.
GW: Mark, yourself and Chris Stuart, ClearLife CTO, worked together at Mizuho before setting up ClearLife. What was the ‘eureka’ moment that led to the decision to launch your own firm?
MV: If I’m being completely honest, it was probably more hubris than “eureka”! After three years of investing in life settlements – and 14 years in derivatives and principal finance – I decided that I wanted to start a consulting business focussed on life settlements. It was becoming clear at that point (in late 2007) that a significant market correction was around the corner and I felt that the appetite for alternative investments in banks was likely to drop. I thought it really couldn’t be too difficult to run my own business (I told you there was hubris involved!) and so made the leap. Chris joining in late 2008 was the key moment that shaped what we wanted to do at ClearLife, as he is expert at converting my wilder flights of fancy into something that can actually be built in a reasonable period of time.
GW: The life settlement market is famously ‘document-intensive’ because of the need to analyse medical records of the insured. What are some of the problems that appropriate technology can solve for in this market?
MV: When one thinks of documents, one tends to think of OCR (optical character recognition) and AI (artificial intelligence) follows shortly behind. There is a plethora of firms working on dedicated “smart OCR” for medical records – mostly outside life settlements – and while that is a challenge in and of itself, I think there is much more that can be done with AI outside of medical records. I’ve lost count of the number of calls and messages we have had from clients who said that interacting with documents is a key challenge and so automating the process of data capture from policy forms, life expectancy reports and other key documents is a natural part of the life settlement purchasing process where technology can make a big difference. I see this as being a step towards AI-driven due diligence, such as being able to identify policies that are likely to have been originated in a non-traditional manner.
Another ongoing challenge is data interchange between market participants. APIs (application programming interfaces) have become mainstream in the past few years and this has enabled us to move from a closed ecosystem (in which everything had to be done within our web environment) to an open platform, in which our clients can pick and choose how and where in the business process they access our services. That mind shift has also changed the way that we at ClearLife think about development and freed up our development team to think more broadly about micro-products rather than one fully integrated platform.
GW: Still on life settlements – what are some of the notable trends you’re seeing generally in this space? Are they short term or structural, and what’s the impact of them on the broader market?
MV: There’s a structural need to improve origination, by which I mean the flow of unwanted policies from consumers to financial investors. We’re seeing an increase in clients looking to source through non-traditional means, such as direct-to-agent and direct-to-consumer channels. We’re also starting to see larger aggregators of life insurance (such as registered investment advisors) begin to work on mining their books of business to identify opportunities to switch their customers into cheaper insurance products, creating a pool of potential life settlements. We see this as another area in which technology can provide valuable insight.
GW: The life-contingent structured settlement market is one that seems to be ‘plodding along’ in the sense that there are high barriers to entry and so there isn’t much in the way of new entrants. Is there enough activity in this space for any new entrants, or is supply quite easily absorbed by the incumbents?
MV: My sense is that it is the latter rather than the former. I’ve heard several market participants complain about the lack of supply; as a consequence, yield targets in structured settlements are even more inelastic than those in life settlements! Structured settlements have always tended to trade at lower discount rates than life settlements, because of this lack of supply, and the origination process and relatively small size of each settlement make this a labor-intensive process. Most of our clients who are involved in structured settlements tend to hold those positions as an adjunct to much larger life settlements book.
GW: Lastly, Mark, some say that alternative investment fund managers of all types are infamous for sticking with Microsoft Excel for a variety of tasks, whether that be on the investor relations side or the deal activity side. What’s your message to those in the life space that have yet to take the plunge? Why change the habit of a lifetime?
MV: There is no denying that Excel is a great “Swiss Army knife” when it comes to modelling. We use it a lot ourselves for bespoke consulting engagements, such as cashflow waterfall modelling when structuring and arranging loans. However, it lacks a number of features that are critical to core business infrastructure, such as access control, security, auditing and process integration. Often without realising it, people will treat Excel as a database tool and therein lies potential disaster. We have done several migrations with new clients where we have taken Excel workbooks of policy and insured information and moved them into our business management and analytics platform for life settlements. Those migrations frequently expose a number of data errors and inconsistencies. So while there are benefits to using Excel for one-off modelling, long-term data storage and analysis is best served by a dedicated environment supported by auditing, access controls and security.
Mark Venn is a Director at ClearLife