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.
Rep. Fred Upton ( R-Mich.), the chairman of the House Energy & Commerce Committee, and Rep. Joseph Pitts (R-Pa.), the chairman of the committee's health subcommittee, for blaming Marilyn Tavenner for PPACA implementation delays, even though they've been doing everything they can to cut her PPACA implementation budget.
NAIC President Kevin McCarty, for his role in the NAIC’s internal discord over how the group would approach the Medical Loss Ratio requirement of PPACA. McCarty’s seeming use of the NAIC to push his separate agenda for Florida introduced divisions to the NAIC at a time when the organization could not afford it. When California Representative Ed Royce called on the NAIC to explain itself shortly after, McCarty had to publicly declare that the NAIC was not a standard-setting organization, a setback for state regulation, a victory for the federalization of insurance oversight, and a whole lot more regulatory uncertainty for the insurance industry itself.
The folks at GEHA, who eliminated the nominal $100 broker finder's fee for brokers who help people with serious health problems enroll in the PPACA Pre-existing Condition Insurance Plan.
Ben Bernanke, who during his stint as Federal Reserve Chairman, has done more to hurt the life insurance industry than any other single bureaucrat by keeping interest rates at ultra-low levels for an ultra-long time. Thanks to him, insurers are altering entire investment portfolios and books of business to compensate. Moreover, as long as interests rates remain so low, as an effort to prod spending and lending, Americans aren’t exactly being encouraged to manage their finances for the long term. If the whole game is to get people to start mortgaging homes again, perhaps that will create more life events that spur the purchase of life insurance. But as the refinance mania of the pre-crash days showed, buying a house and taking on debt doesn’t always translate into more life insurance. Sometimes it just gets people to think that the good times will never end, and planning for a downturn is something only naysayers and nerds do.
The private LTC insurers, who helped producers kill off the CLASS program, without getting Republicans and Democrats to work together to create a suitable alternative, and then started rushing out of the private LTCI market. It looks as if private insurers have eliminated the government LTC program and now, if the exodus from the market continues, are leaving the market without much of a supply of private LTCI coverage.
President Barack Obama, for the central role he has played in how the dreaded fiscal cliff will be dealt with, which will almost certainly result in higher taxes for the wealthy and the scaling back or outright abolition of certain tax advantages enjoyed by various life insurance products. For life sales, how Obama deals with the fiscal cliff will cause the industry a significant amount of pain. The only question is, will it be a level of pain the industry can live with? Obama has already made clear statements that raising taxes on life insurance might be part of that core financial plan he is not willing to flex on when it comes to dealing with the fiscal cliff in the short term, and for financing the government in the long-term. This might be especially true now that he no longer has re-election to worry about. They say a president’s true character comes out in the second term. If the first term brought Dodd-Frank, PPACA, and threats to estate and life insurance taxation, what could be next?
South Carolina Governor Nikki Haley, for improperly steering the South Carolina Health Planning Committee to find ways to not create a state insurance exchange. That Haley used federal grant money dedicated to helping states plan their PPACA-mandated health insurance exchanges is what really got her in trouble. Taking a political stand against PPACA, especially at a time when it was uncertain if the law would survive its Supreme Court challenge, is one thing. Essentially defrauding the American taxpayer to do it is another.
Phyllis Borzi, Assistant Secretary of Labor, for her ongoing efforts to apply a fiduciary standard to the financial services industry. For agents and brokers who would fall under a fiduciary standard, the particulars of such a law quickly become problematic and uneven. That the entire industry has aligned in its opposition to Borzi’s fiduciary crusade says much about how negatively financial advisors of all kinds view things. The Department of Labor already got rejected on this once before; but Borzi remains undeterred. Expect more from her on this in the future. As the SEC undergoes a change in leadership at the end of 2012 and into 2013, the SEC head is expected to be elevated to a White House position. This means giving either Borzi or somebody like her a direct line to the Oval Office, which is already occupied by another Rogue who clearly does not lose sleep over any hardships his policies may bring to life insurers. A fiduciary standard, for all of the inherent difficulties and conflicts it would bring, may not be a matter of if, but of when.
Kevin Keller, CEO of the Certified Financial Planners Board (CFP), for the medieval and opaque manner in which it forced the resignation of Alan Goldfarb, chair of the CFP Board’s board of directors, along with two members of the Board’s Disciplinary and Ethics Commission. The infraction? Nobody really knows. Keller has kept the entire thing under wraps, while Goldfarb’s office suggests it may be over how Goldfarb’s compensation was referred to on the Board’s website. But nobody knows, and Goldfarb’s wrongdoing could be trivial or criminal.
The Romney/Ryan Presidential campaign, for dropping the ball on what had to be the easiest challenge to an incumbent president since Jimmy Carter toppled Gerald Ford. Barack Obama and Joe Biden didn’t win 2012 so much as Mitt Romney and Paul Ryan lost it with a long series of gaffes, missteps, ineffective talking points and a knack for going after the wrong issue at the wrong time. They had help along the way: Campaign manager Matt Rhoades had conservatives calling for his head by the the first Presidential debate, so badly had he handled a series of Romney media events. Various GOP Congressional candidates energized the opposition with their social positions on women’s issues. And a brutal round of primaries left the Democrats with killer opposition strategies left on the battlefield by New Gingrich, Rick Santorum and others. What about the 11th Commandment?
A few of our readers have argued on LifeHealthPro.com that larger financial policy under Republican presidents has done more to hurt life insurance ownership than recent policy crafted by the Democrats by encouraging reckless personal spending and de-emphasizing the need to plan ahead and set aside for one’s family. Even if that is the case, will such long-term trends be more harmful than the potentially seismic regulatory changes a second-term Obama could put into action? What if Obama appoints a Supreme Court justice? What if he appoints two? What if the Democrats sweep in 2014 and re-establish a supermajority? Plenty of difficult questions for those in this industry to answer. But many would feel a lot safer with a President Romney at the helm than a President Obama. And Romney himself really is to blame here; Rhoades is a convenient scapegoat for running a campaign that airballed. Romney had the ear of the country and when it came time for him to speak, he could not get enough people to listen. The life and health industry’s life will surely be made more difficult by this in the coming four years. And for that failure to deliver, Romney lands at the top of this year’s list.
Old age, which made longevity risk the watchword in 2012, both in terms of sales challenges…and insurer obligations. As the average age of Americans continues to rise, so does the likelihood that they will outlive their retirement funds. This makes for a catchy sales hook, but for those taking a hard look at the annuity guarantees sold by the industry over the last several years, the notion of an old nation getting even older suddenly takes on a grim economic liability.