Insurance Companies and Tobacco Investments

Joe Belth is at it again. One of the most brilliant critics of the insurance industry, this retired Indiana University Professor, has devoted the July 1996 issue of his newsletter “The Insurance Forum” to urging insurance companies to stop investing in the tobacco industry.

In typical rigorous fashion, Professor Belth reports that 33 life-health companies have an aggregate $4.5 billion invested in five tobacco firms — Philip Morris, RJR Nabisco, Loews, American Brands and B.A.T. Industries. The largest investments are in Philip Morris — a super aggressive dealer in nicotine.

In late April and early May, Belth surveyed ten large life-health corporations by telephone about their tobacco industry investment policy. He found only one of the ten companies -­Aetna Life Insurance & Annuity Company (ALIAC) — that as a matter of policy refuses to have any tobacco investments in actively managed accounts. Another company — New York Life Insurance Co. -­says it is phasing out its tobacco investments.

Daniel Kearney, executive vice president of ALIAC, gave the obvious rationale for getting out of tobacco in 1993: “Our health operations are a significant part of our business,” he told Belth and that the goal of lowering health care costs is inconsistent with investing in “tobacco capital instruments.”

Northwestern Mutual Life Insurance Co. — considered one of the front rank companies from a consumer sensitivity standpoint by some observers — issued a disappointing statement. It said that

while it surcharges smokers for the added risks, it invests in tobacco stocks where they provide a higher potential return than available in comparable investments in the marketplace. Tobacco is a legal product, the company hastened to say.

The biggest investor by far in tobacco is the Teachers Insurance and Annuity Assn. (TIAA/CREF) which has almost $1.9 billion of tobacco investments. TIAA’s explanation is twofold: it wants a diversified portfolio with good investment results and it wants to engage in an ongoing dialogue with tobacco companies about “how to address legitimate public concerns about the effects of smoking. As a large institutional shareholder, [TIAA/CREF] has used its voting power to support restricting advertisement of tobacco products and eliminating sales of tobacco products to children.”

TIAA/CREF raises an interesting question. Are there ethical alternatives to divestment? If the investor uses the shares to stay on the inside and fight, is that preferable to exit? What if the investor uses the income from the shares to fund public advocacy against the lobbying and practices of the tobacco company giants? Wouldn’t that even be better than simply fighting from the inside as a part owner to change corporate practices?

Belth does not discuss these two alternatives nor the challenging conflict-against-interest course of action — that is using the income to help outside groups oppose the tobacco companies. Instead, he makes the argument that insurance companies should voluntarily “avoid tobacco investments in order to promote the public interest, the interest of their policyowners, and their own self-interest.”

What if, however, TIAA/CREF took the hundred million dollars or so that it receives from its tobacco investments annually and launched a massive anti-tobacco promotion campaign carefully tailored to counter the big tobacco pushers and produce reductions in the numbers of young smokers and lower the annual 425,000 fatality toll in this country?

This is the double trojan horse approach — fight big tobacco on the inside and use its dividends to fight it on the outside. That would certainly take more strategic energy than divestment and make far more waves in the investment and public health communities.

It would also make for a far more interesting debate within the divestment — corporate-social-responsibility community. TIAA/CREF could take this approach in its own self interest and that of its many members, if it remains adamant against selling its tobacco bonds and stocks.