Coventry Direct Raises Concerns About Lapetus Solutions’ Life Expectancy Estimates
Coventry Direct, a leading company in the life settlement industry, has raised serious concerns about the accuracy of life expectancy estimates provided by Lapetus Solutions Inc., an underwriter utilizing AI and biometric data. Coventry alleges that Lapetus’s calculations are significantly underestimating life expectancies, potentially inflating the value of life insurance policies and posing risks to investors.
Coventry, which pioneered the life settlement market – also known as the viatical settlement market – in the early 2000s, depends on companies like Lapetus Solutions to assess the value of life insurance policies it considers purchasing from policyholders. Their business model centers around helping individuals sell their life insurance policies for cash before they expire.
Study Findings: Actual Deaths Exceed Expectations
A Coventry-backed study, conducted by professors Daniel Bauer and Nan Zhu, analyzed 4,378 underwritten reports. The study showed that Lapetus Solutions predicted 648 policyholder deaths during the study period; however, only 203 deaths occurred. This resulted in an actual-to-expected death ratio of only 31%, suggesting a significant potential for error in the life expectancy estimates provided by Lapetus.
Coventry’s internal review further revealed that Lapetus’s life expectancy estimates were shorter than those of other leading providers in 85% of cases. This could contribute to potential overvaluation of life insurance policies and resulting investor losses.
Concerns and Implications
Coventry officials state that the situation should be a warning sign for potential investors in the viatical settlement market. They also claim these inaccurate estimations could alert regulators to a possible inflation of financial assets.
According to Alan H. Buerger, Coventry’s co-founder and executive chairman, “When policies are valued based on life expectancies that are too short, the resulting policy valuations will be higher than they should be.”
Disagreement and Controversy
Lapetus Solutions claims its life expectancy assessments are highly personalized and conducted by board-certified physicians, aiming for an actual-to-expected ratio exceeding 96%. Lapetus offers various reports, including pharmaceutical and clinical analyses, to assist life settlement investment decisions. However, Coventry has sought access to Lapetus’s audit reports filed with Florida insurance regulators, contending they should be public record. The regulators have refused, citing trade secrets.
Coventry filed a Writ of Mandamus in Florida’s Circuit Court seeking to compel the release of the audit reports, alleging Lapetus’s inaccurate estimates have “skewed the entire life settlement market.” The company cites Lapetus’s relationship with Abacus Global, a group of life settlement companies that use Lapetus as their preferred provider. As of September 30, 2024, Abacus’s policies are valued at $273 million, a 124% increase in nine months.
Buerger has emphasized the need for Lapetus to reassess its methods, and that the market needs to be safe. He noted that several competitors have failed because of regulatory uncertainty or mispricing issues.
Although Lapetus Solutions is not the largest firm, its use of AI and biometric data gives a significant role in underwriting. Analysts state that inaccurate estimates could, in theory, shake up confidence, trigger regulatory interest, legal reviews, and cause investors to pull back.
