Insurance giants abandon paternalism Job cuts by insurance companies was almost unthinkable years ago.

April 18, 1991|By New York Times

CHICAGO -- America's giant insurance companies are abandoning their cherished tradition of paternalism, cutting jobs a scale almost unthinkable a few years ago.

The cutbacks come after insurers have failed to improve results through more tentative means like dropping poorly performing insurance lines and brokers who yield the companies no profits.

Several major companies have begun cutting back.

USF&G Corp. of Baltimore, with major losses in its real estate and "junk bond" portfolios, said this month that it would reduce its work force by 2,800 people, or 25 percent, in 1991.

Metropolitan Life Insurance Co. said it would offer early retirement to 4,000 of its 9,000 New York employees, and that 1,000 were expected to accept.

Others announced staff reductions in the previous months: Aetna Life and Casualty is cutting 2,600 employees, or roughly 5.5 percent of its domestic work force; Equitable Life Assurance Society of the United States, 757 employees, or 11.7 percent of its total; and Travelers Corp., 1,000 employees, or 3 percent percent of its total.

John Hancock Mutual Life Insurance Co. has reportedly had heavy layoffs too, but declines to comment.

Except for USF&G, the percentages of workers involved are not huge; together, the cutbacks amount to less than 1 percent of the 2.1 million people who, according to the Labor Department, worked in insurance as of Dec. 31.

Many of the cuts came as companies left unprofitable insurance lines, like Aetna's decision to stop writing individual health policies. To the extent that these policies will be issued by others, the jobs eliminated by Aetna will be made up elsewhere.

Nonetheless, the latest layoffs are the most severe that many in the industry can remember. While they have cut their staffs before, the biggest insurers have long been known as benevolent parents, where most held onto their jobs in good times or bad.

Insurers could get away with consistent staffing regardless of business volume because many were mutuals, owned by policyholders, not by investors. One insurer, Metropolitan Life, still gives employees a free hot lunch every day.

Lately, returns in many insurance lines have worsened so much that even the most protective of insurers have begun to wield the ax.

"For years, insurers viewed themselves as having a wider, statesmanlike position in America," said Sean Mooney, chief economist at the Insurance Information Institute, a New York trade group.

"They would wage expensive campaigns against drunk driving and auto theft even if they hurt profits. Now that is changing. More and more, people running insurance companies are saying, 'This is a business, and it has got to be run for the bottom line.' "

Behind the work-force reductions lies the toughest business environment insurers have faced in years.

For life insurers, fierce competition from investment firms has made it much harder to win money-management business from pension funds. Lower prices for real estate and junk bonds have cut deeply into life insurers' investment returns.

Property-and-casualty insurers, meanwhile, have been grappling with a fourth year of depressed premium levels for commercial liability policies.

They face a continually expanding legal definition of liability. Many business liability insurers say they never dreamed of having to pay for pollution cleanup, an area of coverage that courts are often forcing them to provide.

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