New Beginnings for 119-Year-Old Pacific Mutual : New Leaders Expect Continuing Changes in Firm, Industry

The new leaders at Pacific Mutual Life Insurance Co. say that once they take over on Sept. 1, things at the Newport Beach-based company will remain much the same--in a constant state of flux.

Chairman Harry G. Bubb and President Thomas C. Sutton said social, economic and political pressures have forced the 119-year-old company and the rest of the industry to rethink their role and adjust to the times.

“The most important thing we have going for us is the willingness and ability to change our products to satisfy the changing needs of our clients and to adapt our business environment to the changing nature of the industry,” Sutton said.

The insurance industry must face such issues as how to pay for long-term health care for the growing numbers of elderly people, how to fund retirement income and how to pay for the fight against acquired immune deficiency syndrome.

AIDS will not only kill up to 179,000 people and infect 1.5 million others in the next four years, according to some estimates, but will cost the insurance industry up to $50 billion in life insurance claims over the next decade, possibly bankrupting some companies, according to a recently released study by the Society of Actuaries.

Pacific Mutual has been the corporate leader in Orange County in the fight against AIDS by passing out more than $60,000 in AIDS-related education grants since 1985 and sponsoring an Orange County business leaders task force for AIDS education in the workplace.

“AIDS is the biggest health cataclysm of the century,” said Walter B. Gerken, the company’s soon-to-retire chairman. “The issue of who bears the great cost is becoming a major one, and I don’t have a solution for it. Ultimately, we will have to socialize the cost of it.”

Bubb emphasized that awareness of such changing needs in society is crucial to the company’s growth.

For instance, many companies are providing employees with alternative health plans. Pacific Mutual is responding by acquiring or forming joint ventures in the HMO and preferred provider fields, Bubb said.

Bubb and Sutton, both lifelong Pacific Mutual employees, agreed with Gerken that the challenges for the company in the future will depend on its ability to monitor the vast upheaval in the industry, create new policies and, most importantly, serve the customers.

New Products the Key

“Last year, 97% of the products we provided didn’t exist three years ago,” Sutton said. Bubb said getting those new products to the public “is the key to our growth.”

Pacific Mutual is the state’s largest life insurance company and the nation’s 24th largest. It has more than $30 billion of life insurance in force and, with its subsidiaries, manages more than $18 billion in investor assets.

Together with 10 subsidiaries under the umbrella name of Pacific Financial Cos., the company markets individual and group life policies, group health policies and pension plans and provides administrative and investment-management services.

The insurance business used to be a rather simple process, Sutton said: Policyholders or their heirs generally were guaranteed their principal and a low rate of return.

But new laws and new needs have created such products as a variable life insurance policy. At Pacific Mutual, those who have such policies can pick one of eight funds in which to invest their premiums.

Such policies no longer guarantee the principal in high-growth funds, but they offer an opportunity for a greater return. The policies must also meet Securities and Exchange Commission rules because the SEC deems them securities and requires sales agents to have broker licenses.

Among other issues affecting the industry, Bubb and Sutton said, are:

- The precarious position of the “three-legged stool” approach to retirement income--Social Security benefits, personal savings and company pension plans.

- The lack of adequate long-term health care for the elderly. - The changing tax laws. No matter what future tax laws provide, Sutton said, it is becoming extremely difficult to predict what tax advantages or other benefits will still be around in future years, making it hard to come up with adequate retirement plans.