I cringed in horror as I listened to the Supreme Court debate on health care reform, and not for the reasons you may otherwise suspect. What concerned me greatly, and which is something which ultimately has an impact on the retirement industry, was the common reference by SCOTUS (Supreme Court of the Untied States) to insurance as a "product," and without effective response from the Solicitor General. Insurance is a financial service, not a product; it is the commercial pooling of interests by policyholders to spread risk. It is no more a product than depositing funds in a brokerage account to buy stocks.
I cringed when I realized that we in the industry really have no one to blame but ourselves.
When I first joined the insurance industry, the management consulting firms were working with insurance companies to address insurance’s pretty bad reputation. The term "insurance" had fallen into such ill-repute that even long term industry professionals became reluctant to say that word. I sat through a number of industry meetings where I was amazed at the seeming repulsion at using it. What grew from all of that was an easy way out: instead of referring to insurance policies, we would just instead refer to them as "products." Or, in the retirement world, "retirement products." Even today, look hard to see how often you see reference to a "group annuity contract "or "insurance policy" in the materials where your plan may have purchased one. It has to be disclosed by state regulation, but you’ll only find it in the smallest print possible and in the most innocuous way. You are not going to see it highlighted in the midst of the marketing material, to be sure.
At first I railed against this practice. I had just come in from a manufacturing company where real, tangible product was being produced. Insurance, I insisted, was not cereal. Establishing the terms of an insurance policy is NOT "manufacturing," as the industry started to call it. It was, at best, annoying, and I believed a bit misleading.
I believe strongly in the commercial pooling of interests; it is one of those areas where good social policy and good business practices meet for the betterment of all. I ‘m afraid that, on more than one occasion, I did get on my soapbox to claim that we had nothing to be ashamed of by being in the "insurance business", as long as we did it right. It is, after all, the selling of unique knowledge.
Over time, however, I fell prey to the same practice. You may note in my "elevator speech" description of my law practice, I discuss "retirement products and services." But now all of that is coming home to roost.
The commercial pooling of interest is a complicated matter. Just think about the number of actuaries an insurance company may have (Lincoln, at its height, had 130 of them, and a formal actuarial recruitment, training and rotation program-complete with a sort of hierarchy that only an actuary can comprehend and appreciate) and the seemingly mind-numbing work they do. Even the recent QLAC regulations required the use of an actuary, and some of the terms are difficult, at best. The complications, the risks, and the reliance as a society we have on this pooling is also the reason it is so heavily regulated, in ways no box of cereal is.
It is all about providing financial services. No tangible product is made which can be handled and sold. Instead, we are talking about providing money and knowledge to policyholders under certain defined circumstances.
In the retirement world, for example, I have often referred to distributed annuity contracts as being "in kind" distributions, as it simplifies matters greatly. But as we delve deeper into the regulation of these things, we do ourselves a great disservice-and are likely to to get the regulations wrong- if we view insurance as a product as opposed to a package of financial services; it is about the way we appropriately regulate the pooling of our financial interests.
Insurance is not a cell phone. It is not even broccoli.