FOOL'S EYE VIEW
Trust Me - I'm An Insurance Company

By Stephen Bland (TMFPyad)
January 30, 2002

One of the things that has always puzzled me ever since I stopped wearing short trousers is the way people line up like lambs to the slaughter to give their money to insurance companies to invest for them. Why insurance companies?

Their business is insuring your life, your car, your home, your cat, whatever. Fair enough, nearly all of us need some kind of insurance in our lives. This may be compulsory, such as with motor insurance, at other times merely prudent. It would be rather risky to have a house and fail to insure it against various perils, for example.

But from where on earth did the myth develop that these companies are a good place to invest money, as distinct from merely purchasing insurance products? Why should an insurance company be a good place to invest? Would you ask a plumber to fix your teeth?

The other day I saw a TV ad -- and I don't watch much TV -- for a large, well known insurance company pushing its investment products. It showed some cosy family with a couple of small kids, all cloying sweetness and perfection, such as exists purely in adland.

Anyway the story of the ad was that one of the kids wanted to grow up to be a doctor, I think, with all the attendant costs to the parents of putting the little darling through med. school. The implication was that by investing in this company's products then the whole thing would be a breeze.

"How long does med. school last Jemima? Six years? Oh my gawd, how will we ever be able to afford that! Never mind, the Lard-Butt Insurance Company will be around to see us through." It was so disgusting that it almost made me wallace.

Never mind that the Lard-Butt endowment policies that our sugar-sweet phoney family took out to repay their mortgage, and of course provide a nice little bonus on top, will fail to do so.

Never mind that the wonderful Lard-Butt "guaranteed" with-profit pension plan has recently been rigged with specially low annual bonuses, close to zero, so that the only thing guaranteed is that the final fund will be far lower than those of non-guaranteed policyholders. All perfectly legal, of course, and carefully arranged so as not to breach the Questionable Life case ruling.

Never mind that even their non-guaranteed with-profit pension fund investors are receiving a final fund that is a little more than a parody of the "illustration" issued at the outset twenty years ago. Only an illustration, mind, read the small print mate, we are not saying you will get anything like it. You may get more (yeah, sure) or you may get less. What's that you say? The income from your pension annuity that you were forced to buy from us is a lot less than what we suggested back then? Don't blame us, it's low inflation, it's the weak euro, it's the weather, it's whatever, well, it can't be our fault can it? Anyway, how do you think we fund Lord Lard-Butt and the rest of the team's annual bonuses?

Never mind that the company could get into difficulties. Everyone knows how strong these companies are. It is unthinkable. "Questionable Life?" Never heard of them. Anyway it could never happen to us.

So given all this, I repeat my original rhetoric. Why, in spite of the damning evidence, do people flock to the Lard-Butt insurance company for investment? The only reason of which I can think is massive marketing over decades. It proves that you can fool all of the people all of the time. Well, most, anyway. They flock in to be fleeced.

So here is my advice. Think very carefully before committing to an insurance company for any kind of savings or income product. Think of all the poor performance, the failed illustrations, the cringeworthy TV ads, the company in difficulties.

Then think of the alternatives. Freedom. Investing for yourself. Simply buying shares or perhaps funds if you prefer or have only a modest amount to put away monthly. This is all the insurers do anyway: they stick your money into funds, expensive and frequently poorly performing ones.

Note carefully that the risks are no higher by doing it yourself. Many investors think it is more risky to go it alone. A fallacy. In fact it is less so, because other things being equal you remove a whole layer of charges.

Finally, if you are still not convinced, ask yourself: Given their general track record, can I really trust insurance companies for my investments?

This Fool's Eye View was orginally published in December 2000.