Don’t Let the Image Tarnish : Executive Life case: Insurance industry needs to step in boldly
Life insurance is supposed to provide peace of mind. The simple premise is that a little prudence, forethought and saving in the youthful years will pay off in old age. But confidence in the system has been shaken. Thousands of policyholders of Executive Life Insurance Co. stand uncertain and confused about their policies and annuities. It is therefore in the interest of the life insurance business to reassure policyholders, not only those at Executive Life, but all policyholders nationwide. The industry should guarantee that Executive Life policyholders will not be stuck holding the bag.
In New York, in fact, Metropolitan Life Insurance Co. and others are discussing ways they might help. California life insurers need to do the same. An industrywide effort would also quiet the critics and quell the rising call for federal regulation of insurance, which is now state regulated.
It’s true that financially troubled Executive Life, seized by California insurance regulators last Thursday, is an anomaly. The high-flying, upstart life insurance company was built on an empire of high-risk, high-yield junk bonds, which was contrary to the conventional, conservative ways of the industry. Executive Life’s problems may be unique to the L.A. company, but its failure--the biggest for a U.S. insurer--could tarnish the image of the industry, which on the whole is healthy and profitable.
New worries surfaced over the weekend when regulators acknowledged that retirees, who were assured just last Friday that they would continue to receive monthly payments from Executive Life, may get their checks late, or worse, for a lesser amount than usual. A clarification is expected this week.
Meanwhile, California Insurance Commissioner John Garamendi said Monday that he is confident that the new California Life Insurance Guarantee Fund, created this year, will cover Executive Life’s policyholders and annuitants. But for technical reasons coverage for Executive Life has been unclear.
The industry-funded guarantee fund, which 46 other states have, is designed to bail out troubled companies like Executive Life if a buyer cannot be found. California insurance regulators are attempting to sell all of Executive Life to one company. Garamendi said his discussions with administrators of guaranteed fund arrangements in other states indicate that they will cover their Executive Life policyholders, if necessary. In 1983 the industry voluntarily stepped in to help Baldwin United, an Indiana-based insurance company, when it failed; life insurers pitched in to repay Baldwin’s policy- holders. This kind of action is what is needed here. The nation’s life insurers need to come together now--to preserve the industry’s image, as well as reassure Executive Life policyholders.
