Hartford Being Hartford – Backstabs Customers and Agents

Hartford Management Shows They Lack  Good Sense as Much as They do Talent

In her book The March of Folly (Knopf, 1984) historian Barbara Tuchman wrote, “A phenomenon noticeable throughout history regardless of place or period is the pursuit by governments of policies contrary to their own interests.” Tuchman might well have said the same thing about business managers .

A review of the actions taken by the management of The Hartford Financial Services Group, (Hartford) during the past few years would lead one to scratch their head and ask, “What were they thinking?” It seems that virtually all the policies (pun intended) and actions taken by the board and the management of Hartford have been contrary to the company’s own interests. (Not the least of which was the hiring of a failed ex-banker as CEO of the company.)

Ms. Tuchman continued, “Wooden-headedness, the source of self-deception, is a factor that plays a remarkably large role in government. It consists in assessing a situation in terms of preconceived fixed notions while ignoring or rejecting any contrary signs. It is acting according to wish while not allowing oneself to be deflected by the facts. It is epitomized in an historian’s statement about Philip II of Spain, “No experience of the failure of his policy could shake his belief in its essential excellence.”

If Barbara Tuchman were alive today and wanted to write about a contemporary “march of folly” in the corporate world, then surely Hartford and its “wooden-headedness” leaders would be the modern Philip II.

It’s Déjà-Vu all over Again

In the past few years, the board and management of Hartford attempted to – and almost succeeded – in undoing all the success the company had achieved during the past 200 years. Their actions drove Hartford – one of the icons of the insurance industry – to the very brink of bankruptcy. Only a bailout by the government, an investment of $2.5 billion by Allianz SE and some friendly changes in regulatory requirements saved Hartford. The management of Hartford pushed the company into this ignominy by proving they were effectively incapable, incompetent and inept managers. Their only success was in taking actions that were contrary to the best interests of Hartford.

In a long litany of incongruous actions, what management did in search of short-term results and larger bonuses was to lose sight of the very pillars of insurance management. Hartford management took risks they did not understand, assumed risks they could not manage and put the company in a position to be anti-selected against by outside forces.

These actions manifested themselves in the investments made by the company and in the design of variable annuity policies. In short-hand, what the management did was to offer an investment product – variable annuity – with the guaranteed benefits of a fixed insurance product. To believe that such an approach to product design is possible is the epitome of self-deception. To compound the problem, management made risky investment decisions designed to support the irrational promises in the products. History shows us that both of these approaches were contrary to the best interests of the company. Yet, management made them with gusto.

Still, give Hartford management a modicum of credit. In an effort to guard against committing the same management mistakes in the future, the company withdrew the sale of these risky products and introduced new variable annuities designed to be more in line with the investment type product they are. Gone are the irrational benefits that “guaranteed” the investment return. Also, the company has tightened up its investment controls.

This is all well and good, but now the management of Hartford has taken an action that demonstrates clearly that they are still more than capable of taking actions that are not in the best interests of the company.

According to InvestmentNews.com (9/1/10 & 9/3/10) Hartford on August 23 sent a letter to customers who had purchased the older variable annuities – the ones with the high guarantees. The letter offered the policyholder a “Personal Retirement Manager Exchange Program Opportunity” (some bureaucrat won bonus points for that title) that would “allow” them to trade their old contracts for the newly priced variable annuity.

Obviously Hartford management has good reason to try to get out from under these older policies that clearly benefited the customer rather than the company. But clearly they are being (to be nice) less than transparent with the customers. While the letter says the new products offer “new features,” it is silent as to what those features might be. And, there is no warning to the policyholders as to the benefits and guarantees they will be forfeiting. This is akin to a bank offering you a new credit card with “new features” which turn out to be higher interest and fees for the bank. To say that this approach taken by Hartford management designed to rid themselves of these customer friendly policies is patently unethical is clearly understatement.

To compound their wooden-headedness, this letter was sent to policyholders without informing the agents who sold the policies, until after it had been sent. The objective was obvious: management wanted to circumvent the distribution system and go directly to the policyholder with this “offer.” The Hartford was rightly concerned that the agents would explain to their clients that the “offer” being made by Hartford was not in their best interests and encourage them to ignore it.

What makes the action of Hartford management so dim-witted was their apparent belief that they could accomplish this clumsy sleight-of-hand without the policyholders or the agents getting wind of it and react negatively toward the company. It was another of Hartford’s clumsy actions clearly counterproductive to its own interests. Or to use Tuchman’s poetry: “acting according to wish . . . not facts.”

Now, not only will the policyholders be upset by the efforts of the company to hoodwink them, but also the distribution system will become painfully inflamed.

Compare this thoughtless blunder with one of the first statements uttered by Liam McGee after being named Hartford CEO. One of the core strengths of Hartford said he, was the “enduring relationships with the distribution partners.” Obviously, there was little iron in the words of McGee. By attempting to exclude the distribution system from this process, he clearly speaks with forked tongue and sends a clear message that the “enduring relationships” are really unimportant. (While the letter did suggest the customer go to the agent regarding the offer, it is clear that the intent was to put the idea of change in the mind of the customer.) Of course, it may not be fair to blame CEO McGee in this situation, since he is just exhibiting the disingenuous attitude toward customers and distribution that he learned as a banker.

In fact, a firestorm of protest has already flared from the Hartford distribution system and from consumer advocates. The distribution system is not only frustrated by the actions of Hartford management, but more important they are beginning to question whether they can trust the company with future sales. And no doubt, once consumers come to understand what Hartford is attempting to pull over on them, they will not be too pleased with the company either.

And the Moral of the Story …

It is obvious that despite all that has happened to the success and good name of Hartford over the past few years, the management of the company is still highly capable of consistently making decisions that are not in the best interests of the company. Clearly the CEO, who has no insurance experience, has demonstrated his inability to change the environment of self-destruction at Hartford.

Knowing the past actions of Hartford management and its current arrogant attitude toward customers and the distribution system, one could rightfully question ever buying or selling a product of the Hartford.

It seems – as I have suggested previously – the only way to save Hartford from itself is for the company to be acquired by another insurance organization that can clean house and return Hartford to the great company it once was.

Of course, history being history and Hartford being Hartford there is every likelihood that Hartford management will continue to cut off its nose to spite a (wooden) face.

One response to “Hartford Being Hartford – Backstabs Customers and Agents

  1. Pingback: Like a Blind Stag in Hunting Season, Hartford Financial is Staggering Toward an Uncertain Future

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