Which is too bad because it seems like it would have been a useful bit of context for readers of Bloomberg’s September 14 story, which included this (emphasis added):
Prudential invests the survivors’ money in its general corporate account, where it can earn the insurer as much as eight times as much as it currently pays in interest to beneficiaries.
Prudential held $662 million of survivors’ money in its corporate general accounts as of June 30, according to information provided by the VA. Prudential’s general account earned 4.2 percent in 2009, mostly from bond investments, according to regulatory filings. The company has paid survivors holding Alliance Accounts 0.5 percent in 2010.
In the first, July 28, story, Bloomberg wrote that:
Insurance companies tell survivors that their money is put in a secure account. Neither Prudential nor MetLife Inc., the largest life insurer in the U.S. segregates death benefits into a separate fund.
DeFillippo concedes that is true. But he also said that money needed to meet withdrawals from on-demand types of accounts, including the Alliance Accounts, is invested more conservatively for shorter term, lower yields with less exposure to risk. Did the insurance companies make money by holding the accounts? No doubt they did. Was it equal to the spread in the entire amount earned by the general fund and the amount paid beneficiaries? Unlikely.
And were Prudential’s profits from the accounts major? Probably not given the relative size of the accounts to the general fund.
Neumann said that he, Evans and another editor who worked on the series believe: “The issue is the risk of loss for people with retained-asset accounts. The size of a company’s general fund is irrelevant.”
Myself, I think it would have been useful information to compare the size of the program to that of the general fund, but I can’t fault Bloomberg for not including information that apparently wasn’t provided. DeFillippo said he thought he had told Evans, because it was part of his basic talking points. Evans said he didn’t, and Neumann said that the e-mail to Hugh Son including that information was not forwarded to him or Evans until after I raised the question.
Now let me say a little something about tone.
Quoting Cindy Lohman, whose 24-year-old son was killed by a bomb in Afghanistan, was certainly fair enough:
”It saddens me as an American that a company would stoop so low as to make a profit on the death of a soldier. Is there anything lower than that?”
From the same story, a quote from Jeffrey Stempel, an insurance law professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas:
“‘It’s turning death claims into a profit center.”
And from the same story:
It also quotes Stephen Wurtz, deputy assistant director for insurance at the VA, who has overseen the program for 25 years:”Uncle Sam is ripping off their own,” Wurtz says. “My wife would get the money, and they would blood-suck some of it out of her.”
And then there’s the kicker:”It’s outrageous that somebody’s profiting off other people’s grief,“ says Mark Umbrell of Doylestown, Pennsylvania. His 26-year-old son, Colby, an Army Airborne Ranger who earned a Bronze Star and Purple Heart, was killed in Iraq in May 2007. Umbrell was among those who got a “checkbook” account.
“I think we’re being taken,” he says.
Now here’s the thing: It’s not hard to make insurance companies look bad. They deal, after all, in unpleasant realities: death and catastrophe. And it’s true that insurers make money by investing the premiums they hold while hoping never to have to pay. A former colleague of mine often had to explain to editors why a devastating hurricane was less damaging to an insurance company’s earnings than a downturn in the markets.
But, in fact, insurance, when it is working right, is collective risk-sharing. The industry protects its customers from catastrophic losses if those horrors occur. And the industry’s view of the retained asset accounts is that they provide extra protection—investing large lump sums while survivors have some time to think, guarding against importuning relatives and opportunistic sales pitches.
If I had been the editor of the series, I think I would have argued for fewer colorful quotes about the blood-suckers. I would have also made room in any story that raised the issue of no FDIC coverage for the industry’s position that the state guaranty funds protect the accounts, even if followed by something to the tune of: But lawmakers have questioned the adequacy of that protection.
With those caveats, Bloomberg performed a valuable service by shining a light on a system that was poorly understood by both beneficiaries and regulators and, in doing so, succeeded in bringing about important changes.
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