Will life insurance firms fit under TARP?
Life insurance companies will soon be eligible for bailout money. But will life insurance firms fit under the expanding federal TARP? John Dimsdale reports.
Life insurance (iStockPhoto)
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TEXT OF STORY
Kai Ryssdal: Life insurance companies had an alright day in the markets today. All it took was a mention in this morning's Wall Street Journal that the Treasury Department plans to give them bailout money. It's what's left over in the TARP -- the Troubled Asset Relief Program, the original bank bailout. Life insurers are big investors in real estate and corporate bonds, so they have taken a hit as the economy's gone under. Our Washington bureau chief John Dimsdale reports.
JOHN DIMSDALE: Life insurers act a lot like banks. They take your premiums, invest them and give you or your heirs some of the returns years later. For some, like Robert Hunter at the Consumer Federation of America, insurance companies have made too many big promises to their customers.
ROBERT HUNTER: For example, in variable annuities, they've promised the amount of your insurance won't fall below certain amounts and of course now they don't have the assets they thought they would to back that up.
Those hit the hardest asked for federal help months ago. But insurers are regulated by states, making them ineligible for federal bailout money. Some insurance companies have taken over federally-chartered savings and loans, just so they can be treated as a federal bank and therefore eligible for TARP. Robert Litan at the Brookings Institution says federal oversight is long overdue.
ROBERT LITAN: It's been anachronistic that we've had a state system for insurance. They've been the exception. There's no other system of financial institutions that doesn't have federal regulation.
But could consumers lose confidence in insurance companies that get in line for government help? Robert Hunter says if his company applied, he'd check on the penalties for early withdrawal of his money.
HUNTER: I don't think I'd be putting big hunks of cash into insurance companies that were applying for TARP.
Industry sources, though, say the federal backstop will give customers the assurance their life insurance investments are as safe as their bank deposits. The Treasury announcement on an insurance bailout is expected within days.
In Washington, I'm John Dimsdale for Marketplace.
Comments
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From Dallas, TX, 05/15/2009
I can recover the loss of funds, but once over regulating government has got it's nose under the tent there is no turning back. I closed my Hartford account this morning.
From IN, 05/06/2009
I am a life insurance agent in Indiana, licensed to sell life insurance and "fixed" annuities. These insurances are not investment products and it is unethical, if not illegal to say there are. If it's a variable life insurance product, then the agent needs a securities license to sell it, just as is required for selling variable annuities and mutual funds. Knowing the difference between life insurance products and securities investments will help make your reporting more accurate.
From Los Angeles, CA, 04/10/2009
I believe federal regulation for life insurance companies is long overdue. As part of the bailout, the Feds should insist on consolidating insurance regulation on the national level.
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