Tag Archives: Hartford Insurance

Insurance Executives Prove Stupid is as Stupid Does

The Question is Why Do They Keep On Proving It?

There is a well established mantra in the insurance industry that says, “Any change is a threat!” This attitude is to be taken seriously by any self-respecting insurance executive and is, in fact, lesson number one Bob MacDonald on Insurance for individuals who are taking “Insurance Executive 101” classes. In the insurance industry, change is to be resisted the way a politician shuns candor. Of course, there is good reason for this rule. Most insurance executives are not smart enough to be able to deal with change, so they should do everything they can to ignore or avoid it. (Politicians shun candor in order to get elected and re-elected.)

It’s that kind of behavior that has convinced most people that insurance executives tend to be only smart enough to be, well, insurance executives. For that reason most business schools segregate graduates into three groups. The top 50 percent are directed into a variety of options, the third quartile is encouraged to go into banking and those in the bottom of the class are pushed toward insurance management. (Class members caught cheating are encouraged to become lawyers.)

You think I am kidding about this? Well, think about this. AIG, just a few years ago the largest insurance company in the world, became bankrupt and had to be bailed out by the government when the executives of the company made the decision to provide insurance to gamblers, i.e. Wall Street high-flyers. The insurance offered by AIG guaranteed to make up for any losses the gamblers might incur; no matter how risky their gambles might be.

Can’t you just see all those Wall Street guys sitting around their favorite drinking hole, guffawing and mocking these insurance guys for their stupidity? All the while, the AIG executives were patting themselves on the back and thinking about the bonuses they would get for selling so much “insurance.”

Of course, the insurance executives of AIG were not alone. The executives of Hartford Insurance and those of a number of other companies came up with this great idea to offer insurance that would guarantee to the purchasers of variable annuities that the value of the product would never be lower than the highest value of the policy. (How smart do you have to be to come up with an idea like that?) No matter how low the investments backing the policy might fall, the insurance company would guarantee to pay out what their highest value had been. Like AIG, Hartford and many of the other companies had to be bailed out by the government to prevent insolvency.

Would you have made deals like these? If not, then sorry but you don’t qualify to be an insurance company executive.

Everyone was upset when the banks were bailed out because, “They were too big to fail.” What people didn’t notice was that insurance companies were bailed out because, “They were too stupid to fail.”

But, getting back to change. The insurance industry executives clearly demonstrated their reticence to change – even if it’s to their benefit – during the recent debate over health care reform.

The insurance industry marshaled their forces and spent over $30 million dollars attempting to defeat the recently passed health care reform. The industry spread stories about “death panels,” rationed coverage, loss of choice and higher costs if the reform passed.

This action is consistent with the history of the insurance industry in its efforts to resist change. Fearful that Social Security would eliminate the need for private insurance, the industry fought its enactment tooth and nail, only to discover that Social Security was actually a boon for the insurance industry. Thirty years ago the insurance industry lobbied heavily against major pension reform legislation, only to discover that the new pension laws ended up creating twice as much business for the insurance industry.

Now, despite the efforts of the insurance industry, the health care reform has passed. The insurance industry is bemoaning this horrible legislation and how it will be so bad for them. However, despite the claims of President Obama that the health care reform will “put a check on the insurance industry,” the fact is that this latest change will actually be another profitable opportunity for the industry.

Consider these factors.

The health care reform did not adopt a “single payer” type program. Contrary to the prevailing viewpoint, this new plan is not a “government bureaucratic boondoggle,” but a private industry boondoggle. The legislation mandates that those who do not have health care must purchase it. With no “public option” to create competition, this means that the insurance industry is presented with the potential of 20 million new customers. Most employers are now required to make health care available to their employees. In both of these cases the government will provide either direct payments or tax incentives to help pay for the coverage.

What could be better for the insurance industry than for the government to require that people buy their product and provide either part or all of the funds to pay for it?

A lot was made of the provision to eliminate “pre-existing conditions” as a reason to decline insurance coverage. But it is not like the insurance industry is going to be stuck with these difficult risks. Special state “assigned risk” pools are to be created (much like poor risk auto drivers) to provide coverage for those with pre-existing medical problems. This approach, while providing coverage to those who can’t get it from insurance companies, also serves to make it easier for insurance companies to increase their profits.

So, once again, these insurance company executives prove that stupid is that stupid does.

And the Moral of the Story …

Maybe sometimes it’s smart to be stupid.

You don’t think the insurance company executives are smart enough to employ the “Br’er Rabbit” style of politics do you? You remember when the fox caught the rabbit and while holding the rabbit up by his ears, fell for the pleading of the rabbit to do anything to him, “except to thrown him into the briar patch.” Of course, the briar patch was where he lived and wanted to be.

In this case we have the government catching the “Br’er Insurance Industry” failing to provide effective health coverage to all Americans. The insurance industry is made the bad guy in the health care debate and battered from pillar to post, by all sides. Surely this will be the end of the road for the health care insurance industry. The insurance industry screams the evils of the reform and begs for its failure, knowing all along they will turn out to be the big winners if the reform passes.

Are the insurance industry executives smart enough to know that if they favor a reform plan that it will fail? Are they smart enough to understand that only if they oppose a plan that will actually help them will it stand a chance of passing?

Can they be that smart? Nah … It just proves what I said all along: Stupid is as stupid does!

One Decade Down and Done – Good Riddance!

Welcome to the second decade of the 21st century. Before we get too far into the new decade, it is appropriate to review all the good things that happened during the past 10 years. However, in researching the events of the last decade, I discovered that all the positive events could actually be listed in the short 140-character confines of a Tweet. Unfortunately, the first decade of the 21st century started out as a “double-zero”—and went down hill from there.

We were ushered into the 21st century facing the crisis of Y2K. You remember that fiasco! The computer techies had us convinced that at the strike of midnight 2000, all the computers in the world were going to crash and bring the modern world down with them. (Some airline flights were actually canceled for fear that at midnight the planes would fall out of the sky!) Bookstore shelves were laden with Y2K survival manuals.

Well now, 10 years later, in light of everything that has happened, it turns out that maybe having all the computers go down would have been the best thing that could have happened. The good news is that the first decade of the new century was such a disaster that this new decade just has to be better? It does, doesn’t it?

Let’s review just some of the wonderful events of this past decade and see how they set us up for a fantastic next 10 years. In no particular order or priority, we will explore different categories of activity.

Business in General

Where do we begin? Our minds would go numb if we were asked to list all of the companies that rolled into the new century fat, dumb and happy and crawled out at decade’s end buried in a slagheap of fraud, incompetence, bankruptcy and failure. Could we have imagined in the year “zero-zero” that by the end of the decade many of the largest financial and industrial institutions in the country would still exist only because the government had “bailed” them out?

A new phrase entered the lexicon of business jargon – “Too Big to Fail!” We would have been better off if we had stuck with the attitude of the 20th century – “Too Bad to Survive!”

The decade gave us the crash of the airline industry and the death of the auto industry. (Cars are still being produced, but the auto companies are clearly brain-dead and being kept alive on the respirator of the government dole.) The industry was the wind beneath the wings of the 20th century economy but became an unholy drag on the economy in the first decade of the 21st.

The attacks of “9/11” may be used as an excuse, but the airline industry clearly implemented a new business model during the decade. The philosophy is simple: decrease the quality of customer service in direct proportion to the increase in airfares. The airline executives seem to believe that the higher they can push fares, the lower the level of service should be.

I am willing to bet that at the start of this decade you would have had a difficult time defining a “perp walk.” Now these “shame parades” in which handcuffed business executives are marched by police before a vulturous media have become so commonplace that a web site has been established to track them. It gives the term “golden handcuffs” a whole new meaning. The decade did set a record of sorts; it was the first time in our history in which more businessmen were arrested and sent to jail than politicians.

War–and Peace

Let’s see – for most of the decade we have been involved in three wars: Iraq, Afghanistan and a general “war on terrorism,” and we probably would have been dragged into a war with Iran but we ran short on soldiers. So how come we’re in some many wars?

Well, George Bush wanted a war with Iraq so he could hang the guy who was mean to his papa. The guy did get hung, but we got hung up – to the tune of hundreds of billions of dollars and thousands of deaths. And most of those deaths and wasted billions were spent after Bush declared “mission accomplished.”

It was during this decade that, for the first time in our history, our government declared “torture” to be an accepted instrument of war. That should set us up pretty well as we declare ourselves to be the “moral leaders of the world” for the balance of the century. I guess in one way this could be declared a victory for transparency since we have used torture in the past (or got others to do it for us), but have just never admitted it.

In the name of fighting terrorists who are dedicated to taking away our freedoms, during the past decade the government made its greatest intrusions into our freedoms, the Patriot Act. Just try to send an e-mail, make a cell call or use a credit card that cannot be read, listened to or tracked by the government. A dead giveaway that this was a bureaucratic piece of jackbooting our freedoms was its very title: Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001. Whew! Makes you feel patriotic just to say it.

New Millennium Politics

For 80 percent of the decade George W. Bush was our President. That should be enough said right there! George Bush may not go down in history as one of our better presidents, but at least he will have the distinction of serving two terms as President without actually winning either of the elections.

Quick – Think of one good thing you can remember that George Bush did during his eight years in office! (Almost choking on a pretzel does not count!)

Of course, it could be claimed that one of the good things that happened during this decade is that, while Al Gore may have actually won the election for 2000, at least he did not get to serve.

You know it has been a bad decade for us when the best that Congress could offer up as leaders were Barney Frank and Nancy Pelosi.

In fairness, this decade will be celebrated because, for the first time in our history, this country actually lived up to its promise that “anyone can be President,” by electing a black man to nation’s highest elective office. His election is made even more remarkable by the fact that he may not have been born in this country. (Can you imagine the chaos that would ensue if, during the next decade, this claim is proven?)

Economy and Gluttony

This past decade will go down as a failed experiment in trying to prove that an economy can be sustained indefinitely with the use of free Monopoly money. The last time this was attempted was the decade of the 1920s. In 1928 Herbert Hoover promised, “A chicken in every pot and a car in every garage.” Of course, we know what happened after he was elected. Forget the chicken, people ended up without even a pot to pee in. The promise of Decade 2000 was, “Free money for everyone so you can buy a home – or two or three.” And don’t worry about paying for the house because we’ll make more free money available and the value of the home will go up 20-30 percent a year and you can borrow more money to repay the money you borrowed. The sad thing is that so many fell for this promise and that thousands wound up without either a pot to pee in or a window to throw it out of. We worry about people who are addicted to drugs, but we learned that is not nearly as bad as being addicted to free money.

The accepted economic theory of this past decade was that we could forever borrow our way to prosperity. We bought into this theory so heavily that we actually ran out of our own money to borrow, so we had to begin the borrow the money from the Chinese who had taken in the money we had borrowed to buy things made in China and then they loaned the money back to us. Does this make any sense to you? Of course not, but that did not stop us.

Insurance: Play Your Bets, Here!

This was not a good decade for the insurance industry. The industry entered the new century with leaders who acted as if they could do nothing wrong and found out that they could do nothing right. Great stalwarts of the insurance industry – AIG, Hartford, Prudential, and many others – forgot that they were in the business of managing risk, not taking it. And, they paid dearly for their arrogance.

AIG entered the decade as the world’s largest and most successful insurance company and would have ended it in bankruptcy or liquidation if not for scores of billions of “too big to fail” bailout dollars. The Hartford Insurance Group is another great company that had been building value and reputation for almost 200 years, only to throw it all away during this past decade. The advertising for Prudential in the glory days was, “Get a Piece of the Rock.” At the end of the decade, the more appropriate slogan could have been, “Building Sand Castles in the Air.”

Banking—on Free Money

The bankers used this past decade to confirm what we already suspected. For the most part, bankers have about as much common sense as a school of retarded gold fish. You remember the old saying, “If the deal is too good to be true, it probably is!” At the start of the decade the government offered bankers a deal that seemed to be too good to be true, and they lacked the sense to see that.

The government offered banks virtually unlimited amounts of money for free. (Banks were the vehicle the government used to implement the “borrow your way to prosperity” theory of economics.) It was such a good deal for banks that they could get the money free from the government and then loan it back to the government at interest. Amazing but true! But the bankers were too greedy for such a simple plan. They reasoned that if they took the free money from the government and then loaned it to us – the consumer – at double or triple the interest the government would pay, that they would make billions. And, they did. The only problem is that the greed of the bankers was so rampant that they began to loan money to anyone who could fog a mirror. They seemed to forget that it makes no difference how high the interest rates are, if the people who borrowed the money can’t pay it back, you are not going to have the money to pay back the government that gave you the money in the first place. Surprise, surprise! Borrowers defaulted and the whole house of cards came tumbling down.

Thankfully, the government came to the rescue. The government forgave the original loans it made to banks and then gave them more money so they could stay in business. Does this seem stupid to you? Of course it is, but that’s how things worked in this past decade.


The investment firms of Wall Street were experts when it comes for “funny money.” So, it looked like the first decade of the 21st century was going to be a boon for these companies. Instead, the decade exposed the investment guys as experts only at the boondoggle. These guys got so out of control during the decade that not even the copious amounts of free money the government offered could save them. Besides, most of the money provided by the government went to pay bonuses to the executives of these firms, because they had run out of their own money to pay the bonuses.

Many of the largest and most distinguished investment firms – even with government help – were not able to survive the decade. Others were simply dragged out into the public square and emasculated. Maybe the saddest story of the decade for the investment community was the plight of Merrill Lynch.

For most of the 20th century Merrill Lynch was the face of Wall Street. It represented the hope and the way for everyone and anyone to participate in the allure of Wall Street. By the end of the first decade of the 21st century, Merrill Lynch – much like Tibet into China –virtually disappeared into the bureaucratic catacombs of Bank of America.

When Merrill Lynch found itself in critical financial condition, the government forced the company to turn to Bank of America to be saved. That’s a little like finding a critically injured individual lying in the street and delivering them to a mortuary and asking the mortician to make them better.

The perfect synopsis of the decade for the investment community is just how giddy they are over the gains in the stock market for 2009. This excitement should be tempered only by the fact that the value of stocks – after the rise in 2009 – has returned them to about 50 percent of the highest value during the decade.

People in the News

The decade was filled with new names and people we had never heard of and probably wish we never had, but no one individual (maybe with the exception of Bernie Madoff) better epitomizes the frustration, confusion, deception, deceit, fraud and failure of the decade than the name – Tiger Woods.

We may feel deceived, disappointed and sad about the Tiger Woods saga. But, the reality is that Tiger Woods is simply a carnal metaphor for what happened to all of us in the decade.

Woods had ups and downs along with serious injury (as we did with 9/11) but he came back to dominate his sport with his talent. Yet he was set up to be what he was not – one who was a better person than the rest and immune to the penalty for the failure to do the right thing. In short, he set himself up for his own fall and took it.

Our government, economy, business institutions, leaders and most of us entered the 21st century with a high (false) sense of optimism that we were better than the rest; could do no wrong and even had the arrogance to believe that the laws of man, economics and nature did not apply to us. In short, we set ourselves up for a fall and took it.

And the Moral of the Story …

History, experience and failure are the great pillars of learning. There is little doubt that the first decade was filled with more setbacks than steps forward, but that’s history now. We can learn from that history. The failures of the past decade can give us the experience to know that what works is working to do the right thing, not everything. Failure teaches us what does not work and leads us to find what does work. And in the words of various philosophers and statesmen brighter than I, “Those who ignore history are doomed to repeat it.”

In reality, as painful as it might have been, if we view the first decade of the 21st century as a learning experience, it may just be the best thing that could have happened to us.

What’s Wrong with the Insurance Industry?

“There’s something wrong with us, something very, very wrong with us. Something seriously wrong with us . . .”

— Bill Murray, Stripes

Based on the steady stream of bad news, you’d think Bill Murray was addressing top managers of America’s biggest insurance companies – rather than the misfits and assorted losers of his fictitious 1981 army platoon. If you don’t see the similarity, take a look at a recap of recent industry news and see if you don’t draw the same conclusion that there is something very, very wrong with the current health of the insurance industry and the culprits who made it all possible: 

• The 24-stock KBW Insurance Index fell 48 percent in 2008, with MetLife down 43 percent, Prudential off 67 percent and Hartford plummeting 81 percent.
A.M. Best Company, the primary rating agency for the insurance industry, downgraded 43 companies and issued only 14 upgrades. In the annuity sector Best issued 31 downgrades and only eight upgrades.
• AIG, one of the largest, highest rated and most respected companies in the industry pleads for, and receives, $150 billion in government funds, just to stay in business (the company is now effectively under the control of the government). Continue reading