Quick--Before Anyone Notices

You know that look you get when you think you have gotten away with something--the sly monkey grin.  That is the visual I had yesterday while reading an article from an "expert" in the retirement income field.  He was referring to the use of annuities and how "the masses" (that's you and me) can help fund one's retirement and that if advisors and customers get smarter the insurance companies won't be able to continue to offer such a good deal. 




That is where I see the grinning monkey and wonder about the insurance industry--who us financial planners and "the masses" think of as having our backs.  You know it is one thing to beat somebody to a good deal on Ebay or speculate well on a piece of real estate but INSURANCE?  In order for them to win many have to lose?  That is a whole different meaning to the law of large numbers upon which insurance "risk" sharing is based. 

I'm not saying this "expert" didn't get the math right for HIM.  What I am saying is that the insurance business and specifically the annuity products are a snake pit filled with complex legal documents written by insurance company lawyers.  It is buyer beware out there and many "advisors" (loosely applied here) don't really understand the products they are selling either. 

When consulted a while back for an opinion regarding insurance contracts sold to a bank customer--my conclusion was that while the recommendations implemented were "suitable" by legal definition they were far from what I considered "best" and likely provided the highest possible compensation to the sales people including the bank. 

In today's low interest rate environment we are seeing insurance companies struggling to make profits on their portfolios without taking on additional risk--you know just like the rest of us.  Many insurance companies are completely abandoning product lines or re-writing contracts.  Hartford recently announced an offer to buy-out policy holders from annuities written back when in an attempt to cut their losses.  Other are raising premiums--often ALOT.

Unlike the US Government insurance companies don't have armies to enforce their ability to pay.  At the crux of the 2008 meltdown were numerous insurance companies--think AIG--who were given the opportunity to become banks and accept TARP money or otherwise be backed up by the taxpayers. 

Annuities are an important CONCEPT in planning one's retirement income.  However, insurance companies own the business and have yet to demonstrate their ability to advocate for "the masses".  We need good solutions to long-term retirement income planning.  Unfortunately, for now I'm afraid, we are a long way from getting them.