What Money Can't (Shouldn't) Buy: Markets in Life and Death
Michael Rice, 48, an assistant manager at a Walmart, was helping a customer carry a TV to her car when he had a heart attack and collapsed, died a week later. An insurance policy on his life paid out about $300,000, but the money didn't go to his wife and two children, it went to Walmart which had purchased the policy on Rice's life and named itself as the beneficiary. According to Mrs.Rice, neither she nor her husband had any idea that Walmart had taken out a life insurance policy on him. She sued Walmart in federal court, claiming that the money should go to the family, not the company. A Walmart spokesman acknowledged that the company held life insurance policies on hundreds of thousands of its employees, even on maintenance workers. But he denied that this amounted to profiting from death. "It is our contention that we did not benefit from the death of our associates. We had considerable investment in these employees and came out ahead if they continued to live. In the case of Michael Rice, the spokesman argued, the insurance payout was not a welcome windfall but compensation for the cost of training him and, now, of replacing him. "He had been given quite a bit of training and gained experiences that cannot be duplicated without costs."
Janitors Insurance
It has long been common practice for companies to take out insurance on the lives of their CEOs and top executives, to offset the significant cost of replacing them if they die. Companies have an "insurable interest" in their CEOs that is recognized in law. But buying insurance on the lives of rank-and-file workers is relatively new. Such insurance is known in the business as "janitors insurance" or "dead peasants insurance." Until recently, it was illegal in most states; companies were not considered to have an insurable interest in the lives of their ordinary workers. But during the 1980s, the insurance industry successfully lobbied most state legislatures to relax insurance laws, allowing companies to buy life insurance on the lives of all employees, from the CEO to the mailroom clerk.
By the 1990s, major companies were investing millions in corporate-owned life insurance (COLI) policies, creating what amounted a a multibillion-dollar death futures industry. Companies were drawn to this morbid form of investment by favorable tax treatment. As with conventional whole life insurance policies, the death benefits were tax-free, as was the yearly investment income the policies generated.
Few workers were aware that their companies had put a price on their heads. Most states did not require a company to inform employees when it bought insurance on their lives, or to ask workers' permission to do so. And most COLI policies remained in effect even after a worker quit, retired or was fired. So corporations were able to collect death benefits on employees who died years after leaving the company. Companies kept track of the mortality of their former employees through the Social Security Administration. In some states, companies could even take out life insurance and collect death benefits on the children and spouses of their employees.
Janitors insurance was especially popular among big banks, including Bank of America and JPMorgan Chase. In the late 1990s, some banks explored the idea of going beyond their employees and taking out insurance on the lives of their depositors and credit-card holders.
The booming business in janitors insurance was brought to public attention by a series of articles in The Wall Street Journal in 2002. The Journal told a 29 year-old man who died of AIDS in 1992, yielding a $339,000 death benefit for the company that owned the music store where he had worked briefly. His family received nothing. One article told of a 29 year-old convenience store clerk in Texas who was shot and killed during a robbery at the store. The company that owned the store offered $60,000 to the young man's widow and child to settle any potential lawsuit, without revealing that it had received a $250,000 insurance payout for the death. The series also reported the grim but little-noticed fact that "after the Sept.11 terror attacks, some of the first life-insurance payouts went not to the victims' families, but to their employers.
By the early 2000s, COLI policies covered the live of millions of workers and accounted for 25% to 30% of all life insurance sales. In 2006, Congress sought to limit janitors insurance by enacting law that required employee consent and restricted company-owned insurance to the highest-paid-one-third of a firm's workforce. But the practice continued. By 2008, U.S. banks alone held $122 billion in life insurance on their employees. The spread of janitors insurance throughout corporate America had begun to transform the meaning and purpose of life insurance. "It adds up", the Journal series concluded, "to a little-known story of how life insurance morphed from a safety net for the bereaved into a strategy of corporate finance."
Should companies be able to profit from the death of their employees?
The most obvious objection is: allowing companies a financial stake in the demise of their employees is hardly conducive to workplace safety. To the contrary, a cash-strapped company with millions of dollars due upon the death of its workers has a perverse incentive to skimp on health and safety measures. Of course, no responsible company would act overtly on this incentive. Deliberately hastening the deaths of your employees is a crime. Letting companies buy life insurance on their workers does not confer a license to kill them.
But I suspect that those who find janitors insurance "revolting" are pointing to a moral objection beyond the risk that unscrupulous comapnies might litter the workplace with lethal hazards or avert their eyes from dangers.
What is the moral objection, and is it compelling?
It might have to do with the lack of consent. How would you feel if you learned that your employer had taken out a life insurance policy on you, without your knowledge or permission? You might feel used. But would you have grounds for complaint? If the existence of the policy did you no harm, why would your employer have a moral obligation to inform you of it, or to secure your consent?
After all, janitors insurance is a voluntary transaction between two parties -- the company that buys the policy (and becomes the beneficiary) and the insurance company that sells it. The worker is not party to the deal. A spokesman for KeyCorp, a financial service company, put it bluntly: "Employees do not pay premiums, and therefore there's no reason to disclose the details of the policy to them."
Some states don't see that way and require companies to secure the consent of employees before taking out insurance on them. When companies ask permission, they typically offer workers a modest life insurance benefit as an inducement. Walmart, which took out policies on some 350,000 of its workers in the 1990s, offered a free $5,000 life insurance benefit to those who agreed to be covered. Most workers accepted the offer, unaware of the vast discrepancy between the $5,000 benefit their families would receive and the hunderds of thousands the company would collect upon their deaths.
But lack of consent is not the only moral objection that can be raised against janitors insurance. Even where workers agree to such schemes, something morally distasteful remains. Partly it's the attitude of companies toward workers are worth more dead than alive objectifies them; it treats them as commodity futures rather than employees whose value to the company lies in the work they do. A further objection is that COLI policies distort the purpose of life insurance; what was once a source of security for families now becomes a tax break for corporations. It is hard to see why the tax system should encourage companies to invest billions in the mortality of their workers rather than in the production of goods and services.
Viaticals: You Bet Your Life
We can examine these objections by considering another morally complicated use of life insurance that arose in the 1980s and 1990s, prompted by the AIDS epidemic. It was called the viatical industry. It consisted of a market in the life insurance policies of people with AIDS and others who had been diagnosed with a terminal illness.
Suppose someone with a $100,000 life insurance policy is told by his doctor that he has only a year to live. And suppose he needs money now for medical care, or perhaps simply to live well in the short time he has remaining. An investor offers to buy the policy from the ailing person at a discount, say, $50,000 and takes over payment of the annual premiums. When the original policyholder dies, the investor collects the $100,000.
It seems like a good deal all around.
The dying policy holder gains access to the cash he needs, and the investor turns a handsome profit -- provided the person dies on schedule. But there's a risk: although the viatical investment guarantees a certain payoff at death ($100,000 in this example), the rate of return depends on how long the person lives. If he dies in one year, as predicted, the investor who paid $50,000 for a $100,000 policy makes a killing, so to speak -- a 100% annual return (minus the premiums he paid and fees to the broker who arranged the deal). If he lives for two years, the investor must wait twice as long for the same payout, so his annual rate of return is cut in half (not counting additional premium payments, which reduce the return even more). If the patient makes a miraculous recovery and lives for many years, the investor may make nothing.
Of course, all investments carry risk. But with viaticals, the financial risk creates a moral complication not present in most other investments: the investor must hope that the person whose life insurance he buys dies sooner rather than later. The longer the person hangs on, the lower the rate of return.
Needless to say, the viatical industry took pains to deemphasize this ghoulish aspect of its business. Viatical brokers described their mission as providing those with terminal illnesses the resources to live out their last days in relative comfort and dignity. (The word "viatical" comes from the latin word for "voyage", specifically money and provisions supplied to Roman officials setting out on a journey). But there is no denying that the investor has a financial interest in the prompt death of the insured. "There have been some phenomenal returns, and there have been some horror stories where people live longer," said William Scott Page, president of a Fort Lauderdale viatical company. "That's sort of the excitement of the viatical settlement. There is no exact science in predicting someone's death."
Some of these "horror stories" led to lawsuits, in which disgruntled investors sued brokers for selling them life insurance policies that failed to "mature" as quickly as expected. The discover, in mid-1990s, of anti-HIV drugs that extended the lives of tens of thousands of people with AIDS scrambled the calculations of the viatical industry. An executive of a viatical firm explained the downside of life-extending medication: "A 12-month expectancy turning into 24 months does play havoc with your returns." In 1996, the breakthrough in antiretroviral drugs caused the stock price of Dignity Partners, Inc., a San Francisco viatical company, to plunge from $14.50 to $1.38. The company soon went out of business.
In 1998, The NY Times published a story about an irate Michigan investor who, five years earlier, had purchased the life insurance policy of Kendall Morrison, a New Yorker with AIDS who was desperately ill at the time. Thanks to the new drugs, Morrison had returned to stable health, much to the investor's dismay. "I've never felt like anybody wanted me dead before," said Morrison. "They kept sending me these FeExes and calling. It was like, "Are you still alive?"
Once an AIDS diagnosis ceased to be a death sentence, viatical companies sought to diversify their business to cancer and other terminal illnesses. Undaunted by the downturn in the AIDS market, William Kelley, executive director of the Viatical Association of America, offered an upbeat assessment of the death futures business: "Compared to the number of people with AIDS, the number of people with cancer, severe cardiovascular diseases, and other terminal illnesses is huge.
Unlike janitor insurance, the viatical business serves a clear social good -- financing the final days of people with terminal illnesses. Moreover, the consent of the insured is built in from the start (though it's possible that, in some cases, desperately ill people may lack the bargaining power to negotiate a fair price for their insurance policy.
The moral problem with viaticals is not that they lack consent. It's that they are wagers on death that give investors a rooting interest in the prompt passing of the people whose policies they buy. It might be replied that viaticals are not the only investments that amount to a death bet. The life insurance business also turns our mortality into a commodity. But there's a difference: With life insurance, the company that sells me a policy is betting for me, not against me. The longer I live, the more money it makes. With viaticals, the financial interest is reversed. From the company's point of view, the sooner I die, the better.
Why should I care if, somewhere, an investor is hoping I die?
Perhaps I shoudn't care, provided he doesn't act on his hope or call too often to ask of my condition. Maybe it's merely creepy, not morally objectionable. Or perhaps the moral problem lies not in any tangible harm to me but in the corrosive effect on the character of the investor. Would you want to make a living betting that certain people will die sooner rather than later?
I suspect that even free-market enthusiasts would hesitate to embrace the full implications of the notion that betting against life is just another business. For consider: If the viatical business is morally comparable to life insurance, shoudln't it have the same right to lobby on behalf of its interests? If the insurance industry has the right to lobby for its interest in prolonging life (through mandatory seat belt laws or antismoking policies), shouldn't the viatical industry have the right to lobby for its interest in hastening death (through reduced federal funding for AIDS or cancer research?) As far as I know, the viatical industry did not undertake such lobbying. But if its morally permissible to invest in the likelihood that AIDS or cancer victims will die sooner rather than later, why isn't it morally legitimate to promote public policies that further that end?
One viatical investor was Warren Chisum, a conservative Texas state legislator and "well-known crusader against homosexuality." He led a successful effort to reinstate criminal penalties for sodomy in Texas, opposed sex education, and voted against programs to help AIDS victims. In 1994, Chisum proudly proclaimed that he had invested $200,000 to buy the life insurance policies of six AIDS victims. "My gamble is that it'll make not less than 17% and sometimes considerably better. If they die in one month, you know, they (the investments) do really good."
Some accused the Texas lawmaker of voting for policies from which he stood to profit personally. But this charge was misdirected; his money was following his convictions, not the other way around. This was no classic conflict of interest. It was actually something worse -- a morally twisted version of socially conscious investing.
Chisum's brazen glee for the ghoulish side of viaticals was the exception. Few viatical investors were motivated by animus. Most wished good health and long life for people with AIDS -- except for the ones in their portfolio.
Viatical investors ar not unique in depending on death for their livelihood. Coroners, undertakers, and gravediggers do too, and yet no one morally condemns them. A few years ago, the NY Times profiled Mike Thomas, a 34 year-old Detroit man who is the "body retrievalist' for the county morgue. His job is to collect the bodies of people who die and transport them to the morgue. He is paid by the head, so to speak -- $14 for each corpse he collects. Thanks to Detroit's high homicide rate, he is able to make about $14,000 per year at this grim work. But when violence wanes, Thomas faces tough times. "I know that's kind of weird to hear, I mean waiting around for somebody to die. Wishing for someone to die. But that's how it is. That's how I feed my babies."
Paying the corpse collector on commission may be economical, but it carries a moral cost. Giving the worker a financial stake in the death of his fellow human beings is likely to dull his ethical sensibilities -- and ours. In this respect, it's like the viatical business but with a morally relevant difference: although the corpse collector depends on death for his living, he need not hope for the early death of any particular person. Any death will do.
Death Pools
A closer analogy to viaticals is death pools, a macabre gambling game that became popular on the Internet in the 1990s, about the same time the viatical industry took off. Death pools are the cyberspace equivalent of traditional office pools on who will win the Super Bowl, except that instead of picking the winner of a football game, players compete to predict which celebrities will die in a given year.
Many websites offer versions of this morbid game, with names such as Ghoul Pool, Dead Pool, and Celebrity Death Pool. One of the most popular is Stiffs.com, which held its first game in 1993 and went online in 1996. For a $15 entry fee, contestants submit a list of celebrities they think are likely to die by year's end. Whoever makes the most correct calls wins the jackpot of $3,000; second place is $500. Siffs.com attracts more than a thousand participants a year. Serious players do not make their picks lightly; they scour entertainment magazines and tabloids for news of ailing stars. Zsa Zsa Gabor (age 94), Billy Graham (93), Fidel Castro (85) were the betting favors. Since aged and ailing figures dominate the lists, some games award extra points to those who successfully predict long shots like Princess Diana, who meet untimely deaths.
Death pools predate the Internet. The game has reportedly been popular among Wall Street traders for decades. Clint Eastwood's last Dirty Harry movie, The Dead Pool (1988), involves a death pool that leads to the mysterious murders of celebrities on the list. But the Internet, together with the market mania of the 1990s brought the ghoulish game to new prominence.
Betting on when celebrities will die is a recreational activity. No one makes a living at it. But death pools raise some of the same moral questions posed by viaticals and janitors insurance.
The moral tawdriness of the Death Pools game lies mainly in the attitude toward death it expresses and promotes. This attitude is an unwholesome mix of frivolity and obsession -- toying with death even while fixating upon it. Death pool participants don't simply place their bets; they partake of a culture. They spend time and energy researching the life expectancy of the people they bet upon. They acquire an unseemly preoccupation with the deaths of celebrities. Participating in death pools really changes the way you watch TV and follow the news. But unlike viaticals, they serve no socially useful purpose, but strictly a form of gambling, a source of profit and amusement. Distasteful though they are, death pools are hardly the most grievous moral problem of our time. But they are interesting for what they reveal, as a limiting case, about the moral fate of insurance in a market-driven age.
Life insurance has always been two things in one: a pooling of risk for mutual security, and a grim wager, a hedge against death. These two aspects coexist in uneasy combination. In the absence of moral norms and legal restraints, the wagering aspect threatens to swamp the social purpose that justifies life insurance in the first place. When the social purpose is lost or obscurred, the fragile lines separating insurance, investment, and gambling come undone. Life insurance devolves from an institution to provide security for one's survivors into just another financial product and, finally, into a gamble on death that serves no good beyond the fun and profit of those who play the game. The death pool, frivolous and marginal though it seems, is actually the dark twin of life insurance -- the wager without the redeeming social good.
The advent in the 1980s and 1990s of janitors insurance, viaticals, and death pools can be seen as an episode in the commodification of life, and death, in the late twentieth century. The first decade of the twenty-first century carried this tendency farther. But before bringing the story into the present, it's worth looking back to recall the moral unease that life insurance has provoked from the start.
Moral History of Life Insurance
We commonly think of insurance and gambling as different responses to risk. Insurance is a ways of mitigating risk, while gambling is a way of courting it. Insurance is about prudence; gambling is abou tspeculation. But the line between these activities has always been unstable.
Historically, the close connection between insuring lives and betting on them led many to regard life insurance as morally repugnant. Not only did life insurance create an incentive for murder; it wrongly placed a market price on human life. For centuries, life insurance was prohibited in most European countries. "A human life cannot be the object of commerce," a French jurist wrote in the eighteenth century, "and it is disgraceful that death should become a source of commercial speculation." Many European countries had no life insurance companies before the mid-nineteenth century. In Japan, the first one did not appear until 1991. Lacking moral legitimacy, " life insurance did not develop in most countries until the mid-or late nineteenth century.
England was an exception. Beginning in the late seventeenth century, shipowners, brokers, and insurance underwriters gathered at Lloyd's coffeehouse in London, a center of marine insurance. Some came to insure the safe return of their ships and cargo. Others came to bet on lives and events in which they had no stake apart from the wager itself. many people took out "insurance" on ships they did not own, hoping to profit if a ship was lost at sea. The insurance business commngled with gambling, with the underwriters acting as bookmakers.
English law placed no restrictions on insurance or gambling, which were more or less indistinguishable. In the eighteenth century, insurance "policyholders" placed bets on the outcome of elections, the dissolution of parliament, the chance that two English peers would be killed, the death or capture of Napoleon, and the life of the queen in the months preceding the Queen's Jubilee. Other popular subjects of speculative gambling, the so called sporting part of insurance, were the outcome of sieges and military campaigns, the "much insured life" of Robert Walpore, and whether King George II would return alive from battle. When Louis XIV, the kin gof France, fell ill in August 1715, the English ambassador to France wagered that the Sun King would not live beyond September (the ambassador won his bet). "Men and women in the public eye usually supplied the subjects for these gaming policies, which amounted to an early version of today's Internet death pools.
One especially grim life insurance wager involved eight hundred German refugees, who, in 1765, were brought to England and then abandoned without food or shelter on the outskirts of London. Speculators and underwriters at Lloyd's placed bets on how many of the refugees would die within a week.
Most people would regard such a wager as morally appalling. But from the standpoint of market reasoning, it's not clear what is objectionable about it. Provided the gamblers were not responsible for bringing about the refugees' plight, what's wrong with betting on how soon they will die? Both parties to the bet are made better of by the wager; otherwise, economic reasoning assures us, they wouldn't have made it. the refugees, presumably unaware of the bet, are no worse off as a result of it. This, at least, is the economic logic for an unfettered market in life insurance.
The rampant wagering on death in Britain prompted a growing public revulsion against the unsavory practice, and there was a further reason to limit it. Life insurance, increasingly seen as a prudent way for breadwinners to protect their families from destitution, had been morally tainted by its association with gambling. For life insurance to become a morally legitimate business, it had to be disentangled from financial speculation.
This was finally achieved with the enactment of the Assurance Act of 1774 (also called the Gambling Act). The law banned gambling on the lives of strangers and restricted life insurance to those who had an "insurable interest" in the person whose life they were insuring. Since an unfettered life insurance market had led to a mischievous kind of gaming, parliament now prohibited all insurance on lives " except in cases where the persons insuring shall have an interest in the life or death of the persons insured. "Simply put the Gambling Act limited the extent to which human life could be converted into a commodity." (Geoffrey Clark, a historian).
In U.S., the moral legitimacy of life insurance was slow to develop. It was not firmly established until the late nineteenth century. Although a number of insurance companies were formed in the eighteenth century, they sold mostly fire and marine insurance. Life insurance faced "powerful cultural resistance. Putting death on the market offended a system of values that upheld the sanctify of life and its incommensurability. By the 1850s, the life insurance began to grow but only by emphasizing its protective purpose and downplaying its commercial aspect. Until the late nineteenth century, life insurance shunned economic terminology, surrounding itself with religious symbolism and advertising more its moral value than its monetary benefits. Life insurance was marketed as an altruistic, self-denying gift, rather than as a profitable investment.
In time, the purveyors of life insurance became less bashful about touting it as an investment vehicle. As the industry grew, the meaning and purpose of life insurance changed. Once gingerly marketed as a beneficent institution for the protection of widows and children, life insurance became an instrument of saving and investment, and a routine part of business. The definition of "insurable interest" expanded from family members and dependents to include business partners and key employees. Corporations could insure their executives (though not their janitors or rank-and-file employees). By the late nineteenth century, the commercial approach to life insurance encouraged the insurance of lives for strictly business purposes, extending insurable interest to strangers linked by nothing but economic interests.
Moral hesitations about commodifying death still hovered in the background. One telling indicator of this hesitation, was the need insurance agents. Insurance companies discovered early on that people did not buy life insurance on their own initiative. Even as life insurance gained acceptance, death could not be transformed into a routine commercial transaction. Thus the need for someone to seek out clients, to overcome their instinctive reluctance, and to persuade them of the merits of the product.
The awkwardness of a commercial transaction involving death also explains the low esteem in which insurance salesmen are traditionally held. It's not simply that they work in close proximity to death. Doctors and clergy also do, but they are not tainted by the association. The life insurance agent is stigmatized because he is a salesman of death, making a profitable living off people's worst tragedy. The stigma persisted in the twentieth century. Despite efforts to professionalize the occupation, life insurance agents could not overcome the distatefulness of treating death as a business.
The insurable interest requirement limited life insurance to those with a prior stake, whether familial or financial, in the life they were insuring. This helped distinguish life insurance from gambling -- no more bets on the lives of strangers simply to make money. But this distinction was not as sturdy as it seemed. The reason: the courts decided that, once you had a life insurance policy (backed by an insurable interest), you could do with it what you pleased, including selling it to someone else. This doctrine of "assignment", as it was called, meant that life insurance was property like any other.
In 1911, the U.S. Supreme Court upheld the right to sell, or "assign", one's life insurance policy. Justice Oliver Wendell Holmes, Jr., writing for the Court, acknowledged the problem: giving people the right to sell their life insurance policies to third parties undermined the insurable-interest requirement. It meant that speculators could reenter the market" A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter-interest in having the life come to an end.
This was precisely the problem that arose, decades later, with viaticals. For the investors who bought it, the policy was a pure wager on how long Morrison would live. When Morrison refused to die promptly, the investor found himself with a sinister counter-interest in having the life come to an end.
Holmes conceded that the whole point of requiring an insurable interest was to prevent life insurance from devolving into a death bet, " a mischievous kind of gaming". But this was not reason enough to prevent a secondary market in life insurance that would bring the speculators back in. Life insurance has become in our days one of the best recognized forms of investment and self-compelled saving. So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property.
A century later, the dilemma that confronted Holmes has deepened. The lines separating insurance, investment, and gambling have all but vanished. The janitors insurance, viaticals, and death pools of the 1990s were only the beginning, Today, markets in life and death have outrun the social purposes and moral norms that once constrained them.
Janitors Insurance
It has long been common practice for companies to take out insurance on the lives of their CEOs and top executives, to offset the significant cost of replacing them if they die. Companies have an "insurable interest" in their CEOs that is recognized in law. But buying insurance on the lives of rank-and-file workers is relatively new. Such insurance is known in the business as "janitors insurance" or "dead peasants insurance." Until recently, it was illegal in most states; companies were not considered to have an insurable interest in the lives of their ordinary workers. But during the 1980s, the insurance industry successfully lobbied most state legislatures to relax insurance laws, allowing companies to buy life insurance on the lives of all employees, from the CEO to the mailroom clerk.
By the 1990s, major companies were investing millions in corporate-owned life insurance (COLI) policies, creating what amounted a a multibillion-dollar death futures industry. Companies were drawn to this morbid form of investment by favorable tax treatment. As with conventional whole life insurance policies, the death benefits were tax-free, as was the yearly investment income the policies generated.
Few workers were aware that their companies had put a price on their heads. Most states did not require a company to inform employees when it bought insurance on their lives, or to ask workers' permission to do so. And most COLI policies remained in effect even after a worker quit, retired or was fired. So corporations were able to collect death benefits on employees who died years after leaving the company. Companies kept track of the mortality of their former employees through the Social Security Administration. In some states, companies could even take out life insurance and collect death benefits on the children and spouses of their employees.
Janitors insurance was especially popular among big banks, including Bank of America and JPMorgan Chase. In the late 1990s, some banks explored the idea of going beyond their employees and taking out insurance on the lives of their depositors and credit-card holders.
The booming business in janitors insurance was brought to public attention by a series of articles in The Wall Street Journal in 2002. The Journal told a 29 year-old man who died of AIDS in 1992, yielding a $339,000 death benefit for the company that owned the music store where he had worked briefly. His family received nothing. One article told of a 29 year-old convenience store clerk in Texas who was shot and killed during a robbery at the store. The company that owned the store offered $60,000 to the young man's widow and child to settle any potential lawsuit, without revealing that it had received a $250,000 insurance payout for the death. The series also reported the grim but little-noticed fact that "after the Sept.11 terror attacks, some of the first life-insurance payouts went not to the victims' families, but to their employers.
By the early 2000s, COLI policies covered the live of millions of workers and accounted for 25% to 30% of all life insurance sales. In 2006, Congress sought to limit janitors insurance by enacting law that required employee consent and restricted company-owned insurance to the highest-paid-one-third of a firm's workforce. But the practice continued. By 2008, U.S. banks alone held $122 billion in life insurance on their employees. The spread of janitors insurance throughout corporate America had begun to transform the meaning and purpose of life insurance. "It adds up", the Journal series concluded, "to a little-known story of how life insurance morphed from a safety net for the bereaved into a strategy of corporate finance."
Should companies be able to profit from the death of their employees?
The most obvious objection is: allowing companies a financial stake in the demise of their employees is hardly conducive to workplace safety. To the contrary, a cash-strapped company with millions of dollars due upon the death of its workers has a perverse incentive to skimp on health and safety measures. Of course, no responsible company would act overtly on this incentive. Deliberately hastening the deaths of your employees is a crime. Letting companies buy life insurance on their workers does not confer a license to kill them.
But I suspect that those who find janitors insurance "revolting" are pointing to a moral objection beyond the risk that unscrupulous comapnies might litter the workplace with lethal hazards or avert their eyes from dangers.
What is the moral objection, and is it compelling?
It might have to do with the lack of consent. How would you feel if you learned that your employer had taken out a life insurance policy on you, without your knowledge or permission? You might feel used. But would you have grounds for complaint? If the existence of the policy did you no harm, why would your employer have a moral obligation to inform you of it, or to secure your consent?
After all, janitors insurance is a voluntary transaction between two parties -- the company that buys the policy (and becomes the beneficiary) and the insurance company that sells it. The worker is not party to the deal. A spokesman for KeyCorp, a financial service company, put it bluntly: "Employees do not pay premiums, and therefore there's no reason to disclose the details of the policy to them."
Some states don't see that way and require companies to secure the consent of employees before taking out insurance on them. When companies ask permission, they typically offer workers a modest life insurance benefit as an inducement. Walmart, which took out policies on some 350,000 of its workers in the 1990s, offered a free $5,000 life insurance benefit to those who agreed to be covered. Most workers accepted the offer, unaware of the vast discrepancy between the $5,000 benefit their families would receive and the hunderds of thousands the company would collect upon their deaths.
But lack of consent is not the only moral objection that can be raised against janitors insurance. Even where workers agree to such schemes, something morally distasteful remains. Partly it's the attitude of companies toward workers are worth more dead than alive objectifies them; it treats them as commodity futures rather than employees whose value to the company lies in the work they do. A further objection is that COLI policies distort the purpose of life insurance; what was once a source of security for families now becomes a tax break for corporations. It is hard to see why the tax system should encourage companies to invest billions in the mortality of their workers rather than in the production of goods and services.
Viaticals: You Bet Your Life
We can examine these objections by considering another morally complicated use of life insurance that arose in the 1980s and 1990s, prompted by the AIDS epidemic. It was called the viatical industry. It consisted of a market in the life insurance policies of people with AIDS and others who had been diagnosed with a terminal illness.
Suppose someone with a $100,000 life insurance policy is told by his doctor that he has only a year to live. And suppose he needs money now for medical care, or perhaps simply to live well in the short time he has remaining. An investor offers to buy the policy from the ailing person at a discount, say, $50,000 and takes over payment of the annual premiums. When the original policyholder dies, the investor collects the $100,000.
It seems like a good deal all around.
The dying policy holder gains access to the cash he needs, and the investor turns a handsome profit -- provided the person dies on schedule. But there's a risk: although the viatical investment guarantees a certain payoff at death ($100,000 in this example), the rate of return depends on how long the person lives. If he dies in one year, as predicted, the investor who paid $50,000 for a $100,000 policy makes a killing, so to speak -- a 100% annual return (minus the premiums he paid and fees to the broker who arranged the deal). If he lives for two years, the investor must wait twice as long for the same payout, so his annual rate of return is cut in half (not counting additional premium payments, which reduce the return even more). If the patient makes a miraculous recovery and lives for many years, the investor may make nothing.
Of course, all investments carry risk. But with viaticals, the financial risk creates a moral complication not present in most other investments: the investor must hope that the person whose life insurance he buys dies sooner rather than later. The longer the person hangs on, the lower the rate of return.
Needless to say, the viatical industry took pains to deemphasize this ghoulish aspect of its business. Viatical brokers described their mission as providing those with terminal illnesses the resources to live out their last days in relative comfort and dignity. (The word "viatical" comes from the latin word for "voyage", specifically money and provisions supplied to Roman officials setting out on a journey). But there is no denying that the investor has a financial interest in the prompt death of the insured. "There have been some phenomenal returns, and there have been some horror stories where people live longer," said William Scott Page, president of a Fort Lauderdale viatical company. "That's sort of the excitement of the viatical settlement. There is no exact science in predicting someone's death."
Some of these "horror stories" led to lawsuits, in which disgruntled investors sued brokers for selling them life insurance policies that failed to "mature" as quickly as expected. The discover, in mid-1990s, of anti-HIV drugs that extended the lives of tens of thousands of people with AIDS scrambled the calculations of the viatical industry. An executive of a viatical firm explained the downside of life-extending medication: "A 12-month expectancy turning into 24 months does play havoc with your returns." In 1996, the breakthrough in antiretroviral drugs caused the stock price of Dignity Partners, Inc., a San Francisco viatical company, to plunge from $14.50 to $1.38. The company soon went out of business.
In 1998, The NY Times published a story about an irate Michigan investor who, five years earlier, had purchased the life insurance policy of Kendall Morrison, a New Yorker with AIDS who was desperately ill at the time. Thanks to the new drugs, Morrison had returned to stable health, much to the investor's dismay. "I've never felt like anybody wanted me dead before," said Morrison. "They kept sending me these FeExes and calling. It was like, "Are you still alive?"
Once an AIDS diagnosis ceased to be a death sentence, viatical companies sought to diversify their business to cancer and other terminal illnesses. Undaunted by the downturn in the AIDS market, William Kelley, executive director of the Viatical Association of America, offered an upbeat assessment of the death futures business: "Compared to the number of people with AIDS, the number of people with cancer, severe cardiovascular diseases, and other terminal illnesses is huge.
Unlike janitor insurance, the viatical business serves a clear social good -- financing the final days of people with terminal illnesses. Moreover, the consent of the insured is built in from the start (though it's possible that, in some cases, desperately ill people may lack the bargaining power to negotiate a fair price for their insurance policy.
The moral problem with viaticals is not that they lack consent. It's that they are wagers on death that give investors a rooting interest in the prompt passing of the people whose policies they buy. It might be replied that viaticals are not the only investments that amount to a death bet. The life insurance business also turns our mortality into a commodity. But there's a difference: With life insurance, the company that sells me a policy is betting for me, not against me. The longer I live, the more money it makes. With viaticals, the financial interest is reversed. From the company's point of view, the sooner I die, the better.
Why should I care if, somewhere, an investor is hoping I die?
Perhaps I shoudn't care, provided he doesn't act on his hope or call too often to ask of my condition. Maybe it's merely creepy, not morally objectionable. Or perhaps the moral problem lies not in any tangible harm to me but in the corrosive effect on the character of the investor. Would you want to make a living betting that certain people will die sooner rather than later?
I suspect that even free-market enthusiasts would hesitate to embrace the full implications of the notion that betting against life is just another business. For consider: If the viatical business is morally comparable to life insurance, shoudln't it have the same right to lobby on behalf of its interests? If the insurance industry has the right to lobby for its interest in prolonging life (through mandatory seat belt laws or antismoking policies), shouldn't the viatical industry have the right to lobby for its interest in hastening death (through reduced federal funding for AIDS or cancer research?) As far as I know, the viatical industry did not undertake such lobbying. But if its morally permissible to invest in the likelihood that AIDS or cancer victims will die sooner rather than later, why isn't it morally legitimate to promote public policies that further that end?
One viatical investor was Warren Chisum, a conservative Texas state legislator and "well-known crusader against homosexuality." He led a successful effort to reinstate criminal penalties for sodomy in Texas, opposed sex education, and voted against programs to help AIDS victims. In 1994, Chisum proudly proclaimed that he had invested $200,000 to buy the life insurance policies of six AIDS victims. "My gamble is that it'll make not less than 17% and sometimes considerably better. If they die in one month, you know, they (the investments) do really good."
Some accused the Texas lawmaker of voting for policies from which he stood to profit personally. But this charge was misdirected; his money was following his convictions, not the other way around. This was no classic conflict of interest. It was actually something worse -- a morally twisted version of socially conscious investing.
Chisum's brazen glee for the ghoulish side of viaticals was the exception. Few viatical investors were motivated by animus. Most wished good health and long life for people with AIDS -- except for the ones in their portfolio.
Viatical investors ar not unique in depending on death for their livelihood. Coroners, undertakers, and gravediggers do too, and yet no one morally condemns them. A few years ago, the NY Times profiled Mike Thomas, a 34 year-old Detroit man who is the "body retrievalist' for the county morgue. His job is to collect the bodies of people who die and transport them to the morgue. He is paid by the head, so to speak -- $14 for each corpse he collects. Thanks to Detroit's high homicide rate, he is able to make about $14,000 per year at this grim work. But when violence wanes, Thomas faces tough times. "I know that's kind of weird to hear, I mean waiting around for somebody to die. Wishing for someone to die. But that's how it is. That's how I feed my babies."
Paying the corpse collector on commission may be economical, but it carries a moral cost. Giving the worker a financial stake in the death of his fellow human beings is likely to dull his ethical sensibilities -- and ours. In this respect, it's like the viatical business but with a morally relevant difference: although the corpse collector depends on death for his living, he need not hope for the early death of any particular person. Any death will do.
Death Pools
A closer analogy to viaticals is death pools, a macabre gambling game that became popular on the Internet in the 1990s, about the same time the viatical industry took off. Death pools are the cyberspace equivalent of traditional office pools on who will win the Super Bowl, except that instead of picking the winner of a football game, players compete to predict which celebrities will die in a given year.
Many websites offer versions of this morbid game, with names such as Ghoul Pool, Dead Pool, and Celebrity Death Pool. One of the most popular is Stiffs.com, which held its first game in 1993 and went online in 1996. For a $15 entry fee, contestants submit a list of celebrities they think are likely to die by year's end. Whoever makes the most correct calls wins the jackpot of $3,000; second place is $500. Siffs.com attracts more than a thousand participants a year. Serious players do not make their picks lightly; they scour entertainment magazines and tabloids for news of ailing stars. Zsa Zsa Gabor (age 94), Billy Graham (93), Fidel Castro (85) were the betting favors. Since aged and ailing figures dominate the lists, some games award extra points to those who successfully predict long shots like Princess Diana, who meet untimely deaths.
Death pools predate the Internet. The game has reportedly been popular among Wall Street traders for decades. Clint Eastwood's last Dirty Harry movie, The Dead Pool (1988), involves a death pool that leads to the mysterious murders of celebrities on the list. But the Internet, together with the market mania of the 1990s brought the ghoulish game to new prominence.
Betting on when celebrities will die is a recreational activity. No one makes a living at it. But death pools raise some of the same moral questions posed by viaticals and janitors insurance.
The moral tawdriness of the Death Pools game lies mainly in the attitude toward death it expresses and promotes. This attitude is an unwholesome mix of frivolity and obsession -- toying with death even while fixating upon it. Death pool participants don't simply place their bets; they partake of a culture. They spend time and energy researching the life expectancy of the people they bet upon. They acquire an unseemly preoccupation with the deaths of celebrities. Participating in death pools really changes the way you watch TV and follow the news. But unlike viaticals, they serve no socially useful purpose, but strictly a form of gambling, a source of profit and amusement. Distasteful though they are, death pools are hardly the most grievous moral problem of our time. But they are interesting for what they reveal, as a limiting case, about the moral fate of insurance in a market-driven age.
Life insurance has always been two things in one: a pooling of risk for mutual security, and a grim wager, a hedge against death. These two aspects coexist in uneasy combination. In the absence of moral norms and legal restraints, the wagering aspect threatens to swamp the social purpose that justifies life insurance in the first place. When the social purpose is lost or obscurred, the fragile lines separating insurance, investment, and gambling come undone. Life insurance devolves from an institution to provide security for one's survivors into just another financial product and, finally, into a gamble on death that serves no good beyond the fun and profit of those who play the game. The death pool, frivolous and marginal though it seems, is actually the dark twin of life insurance -- the wager without the redeeming social good.
The advent in the 1980s and 1990s of janitors insurance, viaticals, and death pools can be seen as an episode in the commodification of life, and death, in the late twentieth century. The first decade of the twenty-first century carried this tendency farther. But before bringing the story into the present, it's worth looking back to recall the moral unease that life insurance has provoked from the start.
Moral History of Life Insurance
We commonly think of insurance and gambling as different responses to risk. Insurance is a ways of mitigating risk, while gambling is a way of courting it. Insurance is about prudence; gambling is abou tspeculation. But the line between these activities has always been unstable.
Historically, the close connection between insuring lives and betting on them led many to regard life insurance as morally repugnant. Not only did life insurance create an incentive for murder; it wrongly placed a market price on human life. For centuries, life insurance was prohibited in most European countries. "A human life cannot be the object of commerce," a French jurist wrote in the eighteenth century, "and it is disgraceful that death should become a source of commercial speculation." Many European countries had no life insurance companies before the mid-nineteenth century. In Japan, the first one did not appear until 1991. Lacking moral legitimacy, " life insurance did not develop in most countries until the mid-or late nineteenth century.
England was an exception. Beginning in the late seventeenth century, shipowners, brokers, and insurance underwriters gathered at Lloyd's coffeehouse in London, a center of marine insurance. Some came to insure the safe return of their ships and cargo. Others came to bet on lives and events in which they had no stake apart from the wager itself. many people took out "insurance" on ships they did not own, hoping to profit if a ship was lost at sea. The insurance business commngled with gambling, with the underwriters acting as bookmakers.
English law placed no restrictions on insurance or gambling, which were more or less indistinguishable. In the eighteenth century, insurance "policyholders" placed bets on the outcome of elections, the dissolution of parliament, the chance that two English peers would be killed, the death or capture of Napoleon, and the life of the queen in the months preceding the Queen's Jubilee. Other popular subjects of speculative gambling, the so called sporting part of insurance, were the outcome of sieges and military campaigns, the "much insured life" of Robert Walpore, and whether King George II would return alive from battle. When Louis XIV, the kin gof France, fell ill in August 1715, the English ambassador to France wagered that the Sun King would not live beyond September (the ambassador won his bet). "Men and women in the public eye usually supplied the subjects for these gaming policies, which amounted to an early version of today's Internet death pools.
One especially grim life insurance wager involved eight hundred German refugees, who, in 1765, were brought to England and then abandoned without food or shelter on the outskirts of London. Speculators and underwriters at Lloyd's placed bets on how many of the refugees would die within a week.
Most people would regard such a wager as morally appalling. But from the standpoint of market reasoning, it's not clear what is objectionable about it. Provided the gamblers were not responsible for bringing about the refugees' plight, what's wrong with betting on how soon they will die? Both parties to the bet are made better of by the wager; otherwise, economic reasoning assures us, they wouldn't have made it. the refugees, presumably unaware of the bet, are no worse off as a result of it. This, at least, is the economic logic for an unfettered market in life insurance.
The rampant wagering on death in Britain prompted a growing public revulsion against the unsavory practice, and there was a further reason to limit it. Life insurance, increasingly seen as a prudent way for breadwinners to protect their families from destitution, had been morally tainted by its association with gambling. For life insurance to become a morally legitimate business, it had to be disentangled from financial speculation.
This was finally achieved with the enactment of the Assurance Act of 1774 (also called the Gambling Act). The law banned gambling on the lives of strangers and restricted life insurance to those who had an "insurable interest" in the person whose life they were insuring. Since an unfettered life insurance market had led to a mischievous kind of gaming, parliament now prohibited all insurance on lives " except in cases where the persons insuring shall have an interest in the life or death of the persons insured. "Simply put the Gambling Act limited the extent to which human life could be converted into a commodity." (Geoffrey Clark, a historian).
In U.S., the moral legitimacy of life insurance was slow to develop. It was not firmly established until the late nineteenth century. Although a number of insurance companies were formed in the eighteenth century, they sold mostly fire and marine insurance. Life insurance faced "powerful cultural resistance. Putting death on the market offended a system of values that upheld the sanctify of life and its incommensurability. By the 1850s, the life insurance began to grow but only by emphasizing its protective purpose and downplaying its commercial aspect. Until the late nineteenth century, life insurance shunned economic terminology, surrounding itself with religious symbolism and advertising more its moral value than its monetary benefits. Life insurance was marketed as an altruistic, self-denying gift, rather than as a profitable investment.
In time, the purveyors of life insurance became less bashful about touting it as an investment vehicle. As the industry grew, the meaning and purpose of life insurance changed. Once gingerly marketed as a beneficent institution for the protection of widows and children, life insurance became an instrument of saving and investment, and a routine part of business. The definition of "insurable interest" expanded from family members and dependents to include business partners and key employees. Corporations could insure their executives (though not their janitors or rank-and-file employees). By the late nineteenth century, the commercial approach to life insurance encouraged the insurance of lives for strictly business purposes, extending insurable interest to strangers linked by nothing but economic interests.
Moral hesitations about commodifying death still hovered in the background. One telling indicator of this hesitation, was the need insurance agents. Insurance companies discovered early on that people did not buy life insurance on their own initiative. Even as life insurance gained acceptance, death could not be transformed into a routine commercial transaction. Thus the need for someone to seek out clients, to overcome their instinctive reluctance, and to persuade them of the merits of the product.
The awkwardness of a commercial transaction involving death also explains the low esteem in which insurance salesmen are traditionally held. It's not simply that they work in close proximity to death. Doctors and clergy also do, but they are not tainted by the association. The life insurance agent is stigmatized because he is a salesman of death, making a profitable living off people's worst tragedy. The stigma persisted in the twentieth century. Despite efforts to professionalize the occupation, life insurance agents could not overcome the distatefulness of treating death as a business.
The insurable interest requirement limited life insurance to those with a prior stake, whether familial or financial, in the life they were insuring. This helped distinguish life insurance from gambling -- no more bets on the lives of strangers simply to make money. But this distinction was not as sturdy as it seemed. The reason: the courts decided that, once you had a life insurance policy (backed by an insurable interest), you could do with it what you pleased, including selling it to someone else. This doctrine of "assignment", as it was called, meant that life insurance was property like any other.
In 1911, the U.S. Supreme Court upheld the right to sell, or "assign", one's life insurance policy. Justice Oliver Wendell Holmes, Jr., writing for the Court, acknowledged the problem: giving people the right to sell their life insurance policies to third parties undermined the insurable-interest requirement. It meant that speculators could reenter the market" A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter-interest in having the life come to an end.
This was precisely the problem that arose, decades later, with viaticals. For the investors who bought it, the policy was a pure wager on how long Morrison would live. When Morrison refused to die promptly, the investor found himself with a sinister counter-interest in having the life come to an end.
Holmes conceded that the whole point of requiring an insurable interest was to prevent life insurance from devolving into a death bet, " a mischievous kind of gaming". But this was not reason enough to prevent a secondary market in life insurance that would bring the speculators back in. Life insurance has become in our days one of the best recognized forms of investment and self-compelled saving. So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property.
A century later, the dilemma that confronted Holmes has deepened. The lines separating insurance, investment, and gambling have all but vanished. The janitors insurance, viaticals, and death pools of the 1990s were only the beginning, Today, markets in life and death have outrun the social purposes and moral norms that once constrained them.
Comments
Post a Comment