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Portfolio > ETFs > Broad Market

Disability Insurance Observer: Systemic risk

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The other day, when I wrote about MetLife announcing plans to suspend sales of individual disability insurance (but not group disability products or worksite disability products) in September, that was because a kind Twitter friend, Henry Stern of InsureBlog, tipped me off.

Stern, a longtime agent, tipped me off because he was getting emails about MetLife getting out of individual disability, and that made him a little sad.

Even though MetLife helped invent modern disability insurance, and pushed for nice little public health measures such as preventing tuberculosis by pasteurizing milk, it hasn’t always been a major player in the individual disability market.

An executive from the company bragged about the company mostly sitting on the sidelines in that market in the 1980s and early 1990s, when underwriting and pricing were going haywire. Stern speculated that MetLife may have gotten out of the individual market partly because it simply had an easier time competing in the group disability market.

But one major reason MetLife is pruning that particular non-core operation is that the federal government has been trying to classify the company as a systemically important financial institution (SIFI).

The SIFI designation may or may not stick, and reasonable people might have different views about whether and how the government should go about keeping financial institutions from becoming “too big to fail.”

Certainly MetLife, like most other big financial institutions benefits from (and suffers from) a wide variety of government-imposed measures that affect competition. A market is like a painting hanging over a sofa: Once you make one little adjustment to try to straighten it out, you may have to make many, many more adjustments.

Regardless: It’s ironic that an effort to reduce systemic risk at the kinds of giant financial institutions that have big buildings in New York could end up weakening one of those institution’s efforts to reduce systemic risk inside U.S. families.

The core of the financial institution is the family. All of those great big SIFIs are not going to be very resilient if the families at the heart of the system lack personal protection against sickness, death and disability.

Maybe two of the questions the SIFI guardians should ask themselves is, “How will our decisions affect families’ access to personal protection products?” and, “If there is a reduction in access, is it possible that we have to ‘re-adjust the painting over the sofa’ one more time to try to adjust for that unfortunate effect?”

See also: LTCI Watch: $400


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