IN's Cooper: The Hartford's petard problem

You have to feel sorry about The Hartford's latest problems. The story started about a decade ago, when they created and sold some very good variable annuities. It seems the products were so good, and offered policyholders such valuable benefits, that they weren't such a great deal for The Hartford itself. To improve its own finances, the insurance giant last week sent a letter to holders of those great VAs, telling them about new VAs to consider as a replacement. Like any rational business, The Hartford didn't come out and say, “Trade in your old, better contract for a new, less great one.” Instead, it accentuated the positive, noting that the new VAs have benefits the old ones don't. And it suggested that policyholders talk over any potential change with their adviser. Unfortunately, The Hartford didn't give a heads-up to the brokers and the broker-dealers who sold the original contracts. As we reported last week, reps and executives at securities firms were outraged that they had not been informed that their clients were receiving letters directly from The Hartford about new products. And they were furious that clients were calling up, bewildered. The reps didn't know what to say, and that made them look foolish. Not only were brokers and their firms annoyed — with many threatening to pull their business from The Hartford — but Connecticut insurance regulators also said they are looking into the matter. Poor Hartford, clearly hoisted by its own petard. (I've always liked the sound of that expression, by the way, and thought that it had something to do with hanging. Actually, a petard — derived from the Middle French word for breaking wind — is a small bomb, and if you're hoist with your own petard, you've been blown up by the bomb you were lobbing at someone else.) After all the negative attention it has received, it's clear that The Hartford was blasted by a bomb it thought it had quietly defused. Instead of herding sheep-like investors where they wanted them, The Hartford succeeded in frazzling a good number of its retail distribution partners and rousing a regulator it would rather let sleep. That's why I feel sorry for them. Rather than just ignore the too-good product out in the field, they tuned to the basic principles of financial salesmanship — razzle-dazzling clueless investors with a richly priced mediocre product — to move a new VA. It didn't work, largely because The Hartford forgot Rule No. 1 of financial salesmanship: the salesmen always come first.