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Life Health > Life Insurance > Term Insurance

Disability Insurance Observer: Dear Ben

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I wrote a really scary article a couple of days ago that has not exactly made a big splash out there. 

In the article, executives from StanCorp Financial Group (NYSE:SFG) – the parent of Standard Insurance — talk about how they have to cut long-term disability (LTD) insurance discount rate assumptions, increase disability insurance costs, and assume as a given that sales will drop sharply because of the current low interest rate environment.

In other words: First low rates came for shaky long-term care insurance (LTCI) companies that no one liked very much anyway, and, surprise, surprise, caused those insurers to have problems.

The low rates came for the somewhat more respectable LTCI companies, but, hey, they had the actuarial projections wrong.

Then they came for the universal life products with secondary guarantees, and the issuers of annuities — and, wait: those are core products. Aren’t they?

Now they’re coming for the kinds of salt-of-the-earth products that the Federal Reserve System must be providing for its own employees.

I love some kinds of good-natured conspiracy theories but generally hate the ones involving the Fed.

If there’s a giant system of cross-continental tunnels under the surface of the United States: Cool. Hope they shake my bed.

If President Obama really was a CIA agent back when he was supposed to be in college, and he somehow ran part or all of the U.S. operations in Pakistan: I eagerly await the docudrama.

But the idea that the economists at the Federal Reserve Board want to do anything more devious other than keeping the currency stable and make us all happy seems mean-spirited to me. Paul Volcker, Alan Greenspan and Ben Bernanke are all different kinds of people with different kinds of ideas, but I just don’t believe they have any interest whatsoever in concentrating all financial power in the hands of the 1 percent, or anything of that kind.

Who knows whether deficit spending and low interest rates are really great medicines for what ails the United States and Europe in a bad recession, but I’m convinced that Ben Bernanke thinks the world economies need some Red Bull to get them through tough times.

But, if I were buddies with Bernanke, I’d tell him that one of the side effects of drinking too much Red Bull and too much coffee (as I well know, from guzzling that kind of stuff in a wellness-defying effort to meet website story quotas) is that overdosing on stimulants tends to lead to grouchiness and an inability to focus on long-term goals.

Red Bull can help me write a 300-word Web brief, but it’s not very useful when it comes to getting myself to start researching, reporting and drafting a 10,000-word print article.

Now we see that the focus on low rates and quick, small, government-enhanced returns on investment in government securities is starting to ruin the ability of the U.S. insurance industry to see any market involving anything long-term as a viable market. 

When Ben Bernanke says that low rates are helpful to many people, including homeowners who happen to also be collecting disability or long-term care insurance benefits, because they help hold up home prices: Well, maybe. That could be.

But when executives at StanCorp — a sold, old-line company that’s been around since 1906 — start talking about LTD insurance as if selling that product is a bit unrealistic in the current economic environment: I just think that’s a sign that the low-rate strategy has gone as far as it can safely go.

Not because anyone has bad motives, or even because the low rates were necessarily the wrong medicine when we began taking the medicine, but because we’ve now taken enough of the medicine that big parts of the economy that may really be as important, in some ways, as the residential real estate market are starting to crack.

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