For Policyholders, Having Met Could Pay
Metropolitan Life Insurance’s move to become a publicly traded company will not mean an immediate change for its customers, but the plan appears to be a better deal for them than what policyholders in other insurer conversions are getting.
Met Life--the nation’s second-largest life insurer--is following other mutual life companies as they all struggle to expand as life insurance sales fall.
However, consumer advocates say the news does not mean better policies. Mutual insurance companies--like Met Life is now--pass their profits on to policyholders, who are also owners, in the form of higher returns on their cash-value life insurance. Stock companies--like Met Life wants to become--typically pay lower returns on policies and instead pass profits on to shareholders.
Mutual insurance companies are transforming themselves, raising money to buy banks or add divisions in an increasingly competitive industry. Shareholder-owned companies can tap the stock market for funds, can more easily merge with or acquire other companies and can use stock-option employee incentives.
Met Life is already trying to expand into related businesses such as financial planning and selling mutual funds, using the Snoopy cartoon character to promote the company’s returns and accessibility to individual consumers with the slogan “Get Met--It Pays.”
Met Life is following some of the country’s other large mutual fund companies. Prudential Life Insurance Co. and John Hancock Mutual Life Insurance Co. recently announced plans to demutualize. Other insurers who have already completed their transformations to stock companies include Mutual of New York, Unum Life Insurance Co., Ameritas Life Insurance Corp. and Pacific Life Insurance Co., which is based in Newport Beach.
Among the large mutual insurers that remain are Northwest Mutual and New York Life.
Unlike some other demutualizations, Met Life plans to use a relatively straightforward process that transfers the value of the company to policyholders in the form of shares, cash or credits on their policies. The demutualization could make policyholders hundreds or even thousands of dollars richer. Met Life said it is still working out the eligibility details.
Some earlier demutualization proposals give policyholders only the option to buy shares. Others create separate mutual holding companies and give out little or no stock to policyholders--a type of demutualization that has been bitterly opposed by consumer advocates, who blocked Met Life-supported legislation that would have allowed holding companies in New York.
The effect of more demutualizations on the insurance industry is unclear. Consumer advocates say that although most insurance buyers do not now recognize the benefits of a mutually owned company, they will suffer from the loss of mutual options.
“A very valuable and venerable institution is disappearing from the landscape for consumers,” said Lou Richman, financial editor for Consumer Reports, which wrote about the trend in its November issue.
Insurance industry analysts say mutual companies have traditionally charged less and paid better returns on whole life insurance, which puts some pressure on the industry to keep prices low and their returns high. Met Life returns 7.5% on its whole-life policies, contrasted with returns as low as 5% among some stock-owned companies, said Jim Hunt, insurance analyst with Consumer Federation of America.
But stock-owned companies have had an edge in other kinds of cash-value life insurance, such as variable life insurance, that depends on highly efficient, low-cost operating systems to produce better investment returns, said Robert Reigel, managing director of life insurance for Moody’s Investors Service.
“Mutual companies have not been subject to [stock] market discipline,” Reigel said. “They have been somewhat less focused on operating performance compared to stock companies.”
Insurance prices in general have been declining as Americans live longer and buy less life insurance, opting instead to invest money in the stock market and mutual funds. Annual sales of life insurance fell from $10.6 billion in 1987 to $9.8 billion last year. Financial planners typically advise consumers to forgo cash-value life insurance unless they have fully funded their retirement options and made sure that they can afford proper coverage. Cash-value life insurance is far more expensive than term insurance, which has no investment or cash-accumulation features.
But those who do have cash-value policies would be advised to pay attention to any signals from their mutual insurers that a demutualization is being considered, the Consumer Federation’s Hunt said
Current Met Life policyholders should make sure their premiums are paid and up to date, since lapsed policies probably will not be included in the demutualization bonus.
Those who can opt to put more cash into their policies should do so to take maximum advantage of the process, Hunt said.
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Times staff writer Liz Pulliam can be reached at liz.pulliam@latimes.com.
