Who or what are those forces conspiring to sink the life and health insurance industry, like an iceberg beneath an unsuspecting Titanic? This year, we polled our readers and reviewed our own coverage to determine the top 10 culprits to populate the 2012 Rogue’s Gallery. Who do you think should have made the list? Who should have been spared? Sound off at LifeHealthPro.com and see where your list would have fit in.
John Paulson, for his shareholder activism that led to the Hartford’s exit from the life and variable annuity business. Paulson, a billionaire investor who profited handsomely from subprime lending, dominated sales calls earlier this year by dressing down Hartford president and CEO Liam McGee with language usually reserved for recalcitrant children. But all Paulson cared about was strip-mining Hartford for short-term stock gains, and he largely got what he wanted at the cost of a long-standing insurance brand. Predators like Paulson are avatars for everything that is bad about the stock model of insurance companies. If only there had been as much passion among the other Hartford shareholders to stand up to Paulson in the first place.
Not all of the Rogues could make our list, but there are notable also-rans who deserve a special spot on this year’s Hall of Shame. Let’s see who they are.
The Glenn Neasham jury, for convicting Glenn Neasham on October 21 of theft from an elder, a felony under California law. It’s hard to see how Neasham’s actions constituted theft, given that his client, Fran Schuber, enjoyed an investment gain of $42,000 over the three years she owned the annuity. The verdict was clearly a miscarriage of justice by the 12-person panel, several members of which were, by many accounts, biased against Neasham. The verdict has alarmed producers who express concern about the wider implications of the verdict in so far as agent liability.
Treasury Secretary Timothy Geithner, for his role as the head of the Financial Stability Oversight Council, which earlier this year noted that an insurer that owned a thrift bank could qualify as a “significantly important financial institution.” This sparked a thrift sell-off across the life world, even from smaller insurers that might never have otherwise pinged on the SIFI radar. As for the largest insurers in the industry, such as Prudential and MetLife – as well as any others that will inevitably fail to pass the Fed’s SIFI stress test – the “systemically important” designation will provide an extra regulatory burden that some consumer advocates insist is necessary to prevent another insurance-led meltdown of the financial markets. Others would point out that even in the rarefied air of insurance super-giants, AIG stood in a class of its own, and other insurers are now essentially being made to pay for another’s crimes. Time will tell.
New England Compounding Center (NECC), for creating a fungal meningitis outbreak that killed dozens across the country and injured hundreds more by shipping tainted syringes of steroids to back pain patients. NECC recalled the tainted syringes in September, but the fungal mold within them can incubate for months, so we could see additional cases emerge well into 2013. Health care costs are high enough without these kinds of extraordinary missteps that increase both legal and regulatory stakes for the entire health care industry, including its insurers.
Chief Justice John Roberts, for his deciding vote to uphold the individual mandate component of the PPACA. Opponents of the law pinned their hopes on overturning the individual mandate as un-Constitutional, and without that provision funding the rest of PPACA, the entire reform would fall apart. Alas, Chief Justice Roberts ultimately sided in favor of the law, noting that the individual mandate was un-Constitutional on one hand, but it could be construed as a tax, in which case it was permissible. The way in which the decisions were worded led some to believe that Roberts may have flipped his vote somewhere along the line, giving health insurance agents everywhere broken dreams of a world where PPACA has been overturned and their professional lives can go back to normal.
NSSTA Executive Director Eric Vaughn, under whose leadership the National Structured Settlement Trade Association (NSSTA) has sought to squelch innovations in the secondary market for structured settlement annuities, in part by preventing NSSTA members from promoting or soliciting factoring transactions.
Actuarial Guideline 38, for its substantial increase of life reserving at a time when the life industry can ill afford it. To some degree, this dovetails with larger issues, such as the cumulative weight of annuity guarantees, low life sales and persistently near-zero interest rates, which both make it more difficult for life insurers to raise capital. Few would argue that the NAIC was wrong to develop AG 38. But its presence looms over the industry like a dark cloud, a reminder of larger problems, and a large problem unto itself. The more the industry reserves, the less it has to expand distribution and develop new products.
Hon. Judge William Galasso, who gets special mention apart from the New York Liquidation Bureau for approving the ELNY liquidation plan in March of this year. Along the way, he ran roughshod over the objections of shortfall payees whose payments would be cut by as much at 60 percent. He appeared to have no real understanding of the topics under discussion. He abdicated his authority as a judge to a mere yes or no when approving the liquidation plan. And the topper: granting the New York Liquidation Bureau complete immunity from civil liability for having mismanaged ELNY over the years. Who watches the Watchmen? Not this guy.
The New York Liquidation Bureau (NYLB), which grossly mismanaged ELNY after the company went into receivership in 1991 and forced its liquidation, threatening the financial security of some 1,500 families across the country. Among the agency’s rogues: NYLB chief Jody Hall, who was implicated on corruption charges that led to her dismissal in 2006 and NYLB head Mark Peters, who dismissed many of the agency’s long-time employees and bungled an early attempt to resolve ELNY’s financial problems.