The Insurance Industry Today
In the original 1988 edition of the life insurance investment advisor, Chapter 1 began stating “The financial services businesses have been revolutionized …” Little did I know then that is was just the tip of the iceberg, that “You ain’t seen noting yet” better described the situation.
Since then, the insurance industry has been in turmoil. Insurance commissioners of various states had to take over 47 failing companies in 1989, 41 in 1990, 69 in 1991 (the year such industry giants as Executive Life, Mutual Benefit Life, First Capital, and Monarch Life failed), 32 in 1992, 22 in 1993, 12 in 1994, 8 in 1995, 7 in 1996, and 11 in 1997. It is not over. On August 10, 1999, St.Louis—based General American Life Insurance Company asked for and received regulatory protection from a virtual run on the bank by its institutional investors as a result of the fact that its ratings had been downgraded by the rating services. At the time, the company had $1.63 billion in capital to meet its obligations but was out of cash to meet liquidation demands. By the end of August, Met Life had committed to buy Deneral American for $1.2 billion and assure the healthy continuation of the company. Today you cannot be sure that the insurance company that you buy from will be the insurance company that you die with.
Insurance commissioners take over when they question an insurance company’s ability to fulfill its obligations to its policy owners. Their first action usually is to stop or reduce payments to all creditors, including policy owners with general account products. Anyone who has suffered the consequences of this action realizes that investments within insurance contracts are important and deserve attention. In many cases, these people regretfully learned that chasing the highest interest rate led them to the weakest insurance company. Salespeople also finally realized that those companies offering the highest commissions and interest rates were often the most vulnerable. None of us—consumers, insurance agents, insurance companies, or insurance regulators—will ever be the same, and yet many still fall prey to making the same mistakes today.
This does not mean that the 1988 version of The Life Insurance Investment Advisor is in error or no longer of value. In fact, it is valuable for its historic perspective and as a balanced, even academic, study of the industry and its products at that time. It contained statements like “We hope Executive Life can pay.” It couldn’t! In retrospect, it turned out to be one of the most traumatic of the insurance company failures.
This book, The New Life Insurance Investment Advisor, the first edition of which was published in 1994, does not treat life insurance academically. It is a consumer’s handbook. The objective is to show the consumer what life insurance policies are available, how to choose among them, and, most importantly, how to manage the policies once they own them. It is a book “with and attitude” that does not treat kindly those products that this author considers unacceptable for the new generation of insurance buyers.
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