7/8/07, The Day that Signaled the End of Business as Usual for the Annuity Industry; The “New York Times Test” Finally Arrives and Too Many Can’t Pass
“Executives at most admired companies conduct all business as though every conversation, every e-mail, every meeting and every Board discussion was going to appear tomorrow on the front page of The New York Times, or typed up and distributed to all of their customers. So I think your ‘New York Times Test’ is absolutely accurate. Moreover, most admired companies are driven to produce superior customer service, not because of what their legal contracts say, but because of their desire to do what’s right for the client.” Northwestern Mutual SVP, Chuck Robinson, commenting on my May 21, 2007 essay on what it will take for life insurance companies to become truly admired.
I really think that yesterday marked the beginning of the end for certain annuity sales practices (and products) that simply cannot withstand public scrutiny. After all, “The New York Times Test” I’ve been talking about for a few years finally happened. If you’re not familiar with this analogy it simply means: If your business practices were to become the subject of a front page article in The New York Times, how would you feel? There are many in the annuity industry feeling sick this morning.
As I’ve so often written, the annuity industry continues to endure a painful transition period that’s resulted from a combination of poor sales practices, regulatory scrutiny, hostile press coverage and civil litigation. Equity-indexed annuities and the sales practices used in conjunction with them have drawn the most attention, of course. But other types of fixed and variable deferred annuities have also been snared in the spider web of bad publicity and periodic overreach by regulators. For example, John Setzfand, director of financial security with AARP is quoted in yesterday’s Times article as saying, “But a deferred annuity is almost always a bad idea for a retiree.”
The critics of annuities smell blood and they will not be deterred by anything including the truth. Of course the industry brought this upon itself by not having the will to address some of its most intractable problems while it still had the chance. (You may download a booklet addressing these problems including my proposed remedies by clicking here).
But it’s important to realize that beginning yesterday the scrutiny of annuities and questionable sales practices has reached the “China Syndrome” level. When the Sunday edition of The New York Times puts annuities on the front page (above the fold!) and in the context of victimized seniors, it means that a new and deeper scrutiny of the industry is about to begin.
A Very Different Monday for Life Insurer CEOs
It’s Monday morning in more ways than one. It’s the start of a new work week and it’s the start of a new era in the annuity industry. I’m convinced that annuity company CEOs need to bite the bullet and start getting their companies perceived as being on the side of consumers. It’s the right thing to do, and it’s also the gateway to robust growth. Not sure how to do it? I’ve laid out a plan I believe will work.
As if the present situation didn’t create enough urgency, the Boomers are coming and a good portion of their $30 Trillion in retirement assets needs to be longevitized. This is the greatest business opportunity annuity providers will face in our lifetimes. Providers need to make a clean break with the “old” way of doing things in terms of how they position their products. Incremental adjustments won’t cut it. Time for something more dramatic. Real reform will result in a couple of quarters of lower sales but will be followed by robust, quality growth.
I make the “China Syndrome” analogy with good reason. The New York Times sets the pace for newspapers all over the U.S. as well as the big television networks. Routinely, other news outlets pick-up on what the Times is reporting and make it their own. Will we see CBS, ABC, NBC, CNN, FOX and MSNBC launch their own investigations of the annuity industry? It’s a pretty certain bet that most if not all will.
And what’s the likelihood of ambitious politicians being able to restrain themselves in the midst of mass media exposure of an industry that is described by one regulator as tolerating sales practices that, “….seem designed to trick seniors into listening to swindlers.” Ouch! And is there any reason to doubt that all of this will only increase the desire of plaintiff’s attorneys to make the industry pay a big financial price?
Time is running out on the annuity industry. Real harm is ahead. High-placed heads may roll. Some businesses that not long ago seemed “healthy” will become marginalized. Shareholder value is at risk. New competition may steal the Golden Goose.
Am I a Cassandra? Or have I read it in the Times?
©Copyright 2007 David A. Macchia. All rights reserved.