The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

To sign-up to receive the CSR Newsletters regularly during the fall and spring academic semesters, e-mail author David Chandler at

Wednesday, January 23, 2013

Strategic CSR - Human life

What is the value of a human life? From a business standpoint, it depends on a number of factors. One of the most important factors is how much longer you are expected to live. The longer you live, the less valuable your life (or, more accurately, your life insurance policy) to a firm that is willing to bet against that life, for a price. Such “bets” emerged within the insurance industry as “viatical settlements” in the 1980s. The term “viatical” originated from:

… the Latin word viaticum (making provisions for a journey), and were specifically those policies belonging to people expected to have less than 24 months to live. … the business has continued to grow: Policies with a total face value of around $10 billion were bought and sold [in 2004], according to the Viatical and Life Settlement Association of America.

As the size of this industry grew, firms began to innovate in terms of the application of this product. An example of a company willing to think progressively on an issue that could have created a lot of negative publicity, ended up with the Prudential being the torchbearer for a practice that quickly became the industry standard:

An example of [a socially responsible corporate] practice is Prudential Insurance’s introduction, in 1990, of viatical settlements—contracts that allow people with AIDS to tap the death benefits in their life insurance policies to pay for medical and related expenses. The move generated so much goodwill that competing insurers soon offered viatical settlements as well. Very quickly, corporate behavior that had seemed radical became business as usual throughout the insurance industry.

The article in the url below provides an update on the viatical settlements industry, which is now known as the “life settlement” industry:

The financial practice originated … as a way to help the terminally ill. In the late 1980s, people infected with AIDS often had little time to live and a great need for money. In response, financial planners established the viatical business. Flyers went up at gay bars and clubs encouraging people to sell their life-insurance policies for quick cash. Some financial planners even trolled hospital wards to find customers.

It didn’t take long, however, for the financial industry to realize that viatical settlements had a much wider application. In theory, anyone with a life insurance policy whose life was due to be cut short, could make use of life settlements:

Rebranded and redefined, the life-settlements business grew swiftly, reaching $12 billion in transactions by 2007. The recession has since walloped the industry, as have well-publicized cases of fraud, in which unscrupulous brokers persuaded people to take out life-insurance policies expressly for the purpose of reselling them a couple of years later. Only $3.8 billion worth of policies changed hands in 2010, but insiders hope that the business will ultimately surpass its previous high. There are $18 trillion worth of active life-insurance policies in the United States alone, and very few people even know that they can sell their policies.

Advocates say that these policies offer a win-win situation for victims, who benefit from an up-front payment at a time when they need it most, but also for investors, who get a healthy return on their initial investment (as long as the recipient does not live too long):

For potential investors, meanwhile, the pitch is that settlements offer a safe harbor. Let the Dow rise, let the Dow fall; a death payout is an uncorrelated asset whose timing bears almost no connection to the mood swings of the market.

Ultimately, however, this industry still has some way to go before it can be considered legitimate:

For all the supposed benefits, settlements still strike many people as creepy. They invert the traditional incentives of life insurance. Insurance companies have always had an interest in you, the policyholder, living as long as possible so that they can collect more premiums. Generally, you also want to live a long time, for obvious reasons. But a settlement means someone hits the jackpot when you die, and the sooner that happens, the more money that person makes.

Take care

Instructor Teaching Site:
The library of CSR Newsletters are archived at:

What’s Your Life Worth? The Strange, Lucrative Market for Other People’s Life-insurance Policies
By James Vlahos
August 12, 2012
The Sunday New York Times

The first quote is from:
By Karen Richardson, ‘Viaticals’ May Draw More Insurers, The Wall Street Journal, May 18, 2005, pC3.

The second quote is from:
Roger Martin, The Virtue Matrix, Harvard Business Review, March 2002, Vol. 80, Issue 3, pp 68-75.