ZIFFPAGE TITLEFinal ArrangementsBy Baselinemag | Posted 2005-10-01 Email Print
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Coventry First's specialty is buying life insurance policies from people nearing the end. Custom-built software helps the company calculate the right price, in about 3 seconds.
For those looking to monetize their life insurance assets, it's a potentially big payout. And it's also big money for Coventry First: Founded in 1998, the privately held firm today manages about 2,400 life insurance policies worth a total of $5 billion in death benefits, an average of $2.1 million per policy. The 116-person company generated $391 million in revenue last year, more than double its take in 2002.
Andrew Brecher, Coventry First's senior vice president of information technology, chalks up the company's ability to efficiently track hundreds of policies with a relatively small number of employees to the fact that its major systems, including applications for analyzing policies and managing cases, were developed in-house.
"There's no other industry like this, so we've built the software from the ground up to do exactly what we need," he says. Coventry First's revenue-per-employee ratio, $3.4 million in 2004, is nearly four times the average for traditional insurance providers.
As a pathfinder in a new industry, Coventry First says it maintains high standards for its business practices. It works only with institutional lenders, not individual investors, and keeps the identity of policyholders secret from those investors. (The company won't name investors, but industry sources say financial services giant American International Group is one; earlier this year, regulators required AIG to account for its life-settlements holdings as investments rather than income, a change that reduced previously reported 2004 net income by $129 million.)
Moreover, according to Coventry First, it's providing a valuable service to people who would otherwise have to sell their policies back to their insurance companies for a fraction of the face value. Such life-settlement deals, executives say, can amount to four times or more what policyholders might receive from their primary insurance carriers. "We offer market value for a policy, based on current conditions," Muñiz says.
In other words, if you're a 75-year-old man with a cardiovascular disease that makes it likely you will die in the next five years, the value of your life insurance policy to a company like Coventry First is greater than if you're a Methuselah who will hit 100. That's because if you have a shorter life expectancy, the total premiums paid toward your policy before your death will be less, while the payout will be the same. "If someone's a 55-year-old male and has never had a health problem," Brecher explains, "we're not even going to look at the policy."
The key, however, is to figure out what price will provide the best return to the investor buying the policy as well as the most attractive offer to the policyholder.
That's where Brecher and his team come in. The crown jewel of the company's portfolio of custom code, he says, is its pricing application. Written by five software developers using Microsoft's Visual Basic programming tools, the software analyzes details of a life insurance policysuch as a person's age, gender and existing health conditionsbased on actuarial assumptions developed with Coventry First's 16 financial engineers. It then spits out an expected rate of return and a settlement price, in about 3 seconds.
"You need to be able look at the results and know what they mean, but all the intelligence is in the software," Brecher says. "It's complex. Nobody else can do this."
Brian Smith, president and CEO of Life Equity, which competes with Coventry First, says his 20-person firm has created a similar policy-analysis database. But he gives Coventry First credit for consistently and accurately predicting returns, compared with other players. "I do think Coventry First does a good job," he says.