Today, my associate editor Mike Stanley passed along to me a column from the New York Times magazine entitled “Whole Life Premium,” in which the author tells of how, upon successfully getting an error on his personal auto policy fixed, is pitched on buying some life insurance. Long story short, upon learning that the author is in fact a relatively young guy in decent health with no family to provide for, the rep at the unnamed insurance company tut-tuts the author. “Life insurance is meant to preserve an estate, not to create one,” the rep says, and upon deciding that the author doesn’t have much to insure except for funeral costs, the rep basically kills the sale. She suggests that the author get in touch when his conditions change.
This column reminds me of an old adage my college friends attending Washington & Lee’s journalism school would jokingly say: “Never let the truth get in the way of a good story.” I strongly suspect this column is liberally seasoned with balderdash with a generous side helping of poppycock. Why? From conversations I have had with industry folks, I can actually see a company deciding not to sell a prospect a small policy since the commission on them tends to be low. But in the case of this story, the sale is over the phone, and by the author’s account, it is nearly complete by the time the rep pulls the plug, which makes little sense to me. (If I am wrong, dear reader, please let me know, and I’ll gladly stand corrected.)
But there is more to it than just that. Honestly, I cannot see a life insurer declining to sell a product to a customer based on how the customer intends to use that product. That the rep in this story felt the author would misuse the money from his eventual life claim strikes me as a projection of negative reputation upon the industry by an already skeptical writer for a publication that, let’s be frank here, has had a few problems with the truth in years past.
Now, perhaps I am wrong here. Maybe there are plenty of life insurers who would take issue with a policyholder insuring himself for a handsome sum when he really had no prospective widows or orphans to take care of. But it seems to be that the manner in which life insurance is priced and sold, it should not matter to the insurer one bit how the death claim money is actually spent. It is meant, ideally, for funeral expenses, for college expenses of the kids, to pay off a house, etc. But there are plenty of times when the money goes to other things. It is not as if life insurers run an audit on how you actually spend the money, correct? And why should the insurer even care? Life insurance is priced by a pretty successful bit of actuarial science, all things considered, that care not for the morality of the transaction. The success of the industry is based on the financial success of its products. That much is clear.
There are other details in this article that bother me, like the fact that the insurance company in the supposed transaction is never actually mentioned by name. It’s almost as if the author just said he was speaking with “the insurance company,” like we might say we speak with “the phone company” or “the electric company.” And in so doing, the author homogenizes an entire industry of hundreds of companies down into a single stereotype that stands in for any and all life insurers everywhere, big or little, mutual or stock, successful or unsuccessful, saintly or bastardly.
For the Times magazine crowd, this is enough. The article is on the last page of the book in a space reserved for its lighter essays meant to evoke an emotional response rather than a reasoned one. And the aim to this article, it would seem, was to turn the notion of underwriting on its head. We all know that some people simply cannot get life insurance. My late father could not because of some grievous health problems he had early on, and it would have been almost impossible for any life insurer to try to underwrite the guy accurately. And while that is unfortunate, in the end you can’t really blame a life insurer for feeling that it cannot make a profit off of a prospective client. It is a business, after all.
But this article in the Times magazine goes one step further, suggesting that life insurers not only have underwriting criteria to uphold, but they have moral criteria as well. The tone of this particular article considers the possibility with a understated contempt, and I think that with stories about the industry’s retained asset troubles continuing to proliferate, I have to wonder about the editorial intent of the piece. Was it really supposed to be a slice of life story? Or was it a subtle dig at presumed standards of behavior in an industry that on other fronts seems unable or unwilling to live up to them?
The unclaimed property situation is, in my opinion, one of the biggest stories of the year for the life insurance world, and quite possibly one of the most important market conduct stories since all of those ugly class actions back in the mid-1990s. Maybe I’m wrong; after all, to a large degree, this all strikes me as a craven treasure hunt by Verus and by state departments of insurance only too happy to get in on an old-fashioned shakedown. But to read articles like “Whole Life Premiums,” to learn that today’s graduates from college insurance programs don’t fancy entering the life insurance business because they have a negative impression of it, to see regulators already pinning financial figures on what retained assets will ultimately cost the industry…it all points to something bad.
I speak often with veterans of this industry who lament that what was once an industry meant to protect widows and orphans has since become a factory for manufacturing product, largely reliant on an army of mercenaries to sell it, all the while more interested in fattening retirement accounts than in helping one’s family survive the financial ruin of a breadwinner’s death, or helping policyholders survive a trip to the hospital. The numbers of this industry bear it out: annuities account for more than half of the industry’s revenue. Life insurance makes up maybe 30%. Health insurance, maybe 20%. Take that shift in interest, is it any wonder the industry is having a hard time getting its mission of protecting widows and orphans out there? Is it any wonder that articles like “Whole Life Premium” grace the pages of the Times? Is it any wonder that you might read an editorial like this one and grind your teeth all the while?
No, it is not.
There are very few truly sinister industries out there. Many people would like to think that insurance is one of them. That is not true, nor is it a fair assessment of an industry that does an incredible amount to deliver certainty and sustainability to individuals and companies and organizations too numerous to count. But for all that good, there persists a villain story that just will not go away. The industry does do things that bear scrutiny and criticism – this retained assets situation is one of them, I think, for it speaks either of industry incompetence or laziness, either one of which merit correction. But it helps no one to make up stories about an industry just to feed the flames of suspicion and prejudice. If I am wrong about this article, and this is a true telling of a sales call, then I’ll cop to it, but only while noting that the rep was out of line for placing such parameters on the sale and the carrier was shortsighted if the rep’s attitude was directly encouraged. That said, I continue to doubt either was the case, and I suspect that what we have here is a story too good to let reality obstruct.