Study Reports Health, Life Insurers Invest Nearly $2 Billion in Fast Food
You may remember the survey published in 2009 by Harvard Medical School researchers which claimed that health and life insurance companies had almost $4.5 billion invested in tobacco stock. Heavily disputed as the numbers were, the comprehensive database compiled from SEC filings used in the study proved sound. MetLife, Cigna, Sun Life, and others released press statements denying any significant direct investment in tobacco stocks. 
Their cumulative total through subsidiaries or third-party index funds, however, was staggeringly high.
Harvard Medical School is in the news again after publishing further analysis in the American Journal of Public Health regarding the investments of health and life insurance companies. They tracked the total value of stock in the top five fast food companies as of June 2009, which summed to a quite sizable $1.88 billion.
Of the giants, Northwestern Mutual led the pack at $422 million. Massachusetts Mutual held $367 million and Prudential $356 million. When contacted for comment, the assistant director of corporate relations of Northwestern Mutual claimed their investment to be only around $250 million, and argued that, “We have to determine what’s going to give our policy owners value. We have to make sure we fulfill our obligations to them, and to do that we invest in a wide variety of industries.” By her estimate, Northwestern’s fast food total is just .2% of their entire portfolio.
Objections raised by other insurers surveyed in this analysis resonate of last year’s tobacco study. The database used for the Harvard research includes exposure through index funds, and many of the insurers only account for direct investments. Regardless, the industry’s financial leverage is so great that they could create index funds around commodities that were not counterproductive to their company missions. They are funding, through an intermediary, an industry which is a significant contributer to the soaring obesity rates in America. The total medical cost related to obesity in 2000 was almost $200 billion dollars. It certainly seems counterproductive for insurers, especially of the health and disability variety, to fund a significant cause of death and disability.
Some say that this is a revolving door methodology employed by health and life insurers to maximize profits. Get them fat, keep them there, and make money coming and going. While there is truth to profitability usually being a percentage revenue, so earnings grow in absolute terms with the scale of demand, that’s not what is going on here.
I see insurers more as profit motivated statisticians than health care providers. While most of us get mailings from our insurers encouraging us to find better ways to live healthily, that is because it is in their best fiscal interests to do so. Life and health insurers don’t want their customers to die or get sick, that’s when they have to pay out. The real problem here is that the insurers could use some tact and practice a little conscientious investing. If fast food stock is just .2% of Northwestern’s portfolio it shouldn’t be hard to make it zero. If they don’t divest on their own, consumers may offer these statisticians a strong financial incentive to do so.
The Paradigm Revolution 
Anyone familiar with Peter Drucker or Ben & Jerry’s would use this research to highlight the opportunity of such companies to use their leverage for the greater good by pulling their investments from companies negatively impacting not only society, but in this case, their bottom line. This would require much more micromanagement of their investments, but it would be neat to see them pull out from the tobacco and fast food industries, and instead divert such funding to aid the expansion of chains of health food stores or gyms, for example.
J said this on April 23, 2010 at 7:56 pm |