The secret lesson of Other People’s Money

If you’ve never seen the movie “Other People’s Money,” starring Danny DeVito, go rent it.

Not because it’s one of my favorite movies…

…not because it contains one of the funniest lawyer jokes ever told…

…but because it’s got some epic business lessons embedded within.

The basic premise of the flick is that DeVito plays an investor who is referred to by his critics as “Larry The Liquidator”.

He buys up troubled companies, fixes them and then sells them for a profit.

Of course, companies resist this because they like things the way they are. They hold out and stick with bad financial decisions because of tradition, a perceived duty to the community, a perceived duty to employees, and so on…

…a duty to everyone but the owners of the company — the shareholders.

It’s fascinating to me how the movie accurately models what happens in real life. People will bend over backwards to serve other people who either 1) spit in their face or 2) are indifferent to their existence. When this happens in the investment world, stock prices tank.

In the movie, a business Larry is trying to buy is willing to tank the company and go out of business…all to resist change. Change that would save the company.

Insane, right?

But… oh so common. Some people resist change to the point of self-destruction.

Speaking of which, if you’ve been following the life insurance industry, you’ve probably noticed some curious things happening. Namely, some big names in the industry have exited the business of individual life insurance altogether… MetLife and Voya, for example… some of the largest sellers of life insurance in the world… poof. They have retreated into the darkness, instead deciding that non-life insurance products are more profitable. Not only that… these companies are actively selling off their life insurance business and want nothing to do with it whatsoever. It’s almost like a disease. They can’t get away from it fast enough. There’s a lesson in there, if you’re an astute reader. A lesson which has implications for pretty much any decision you make about which companies to do business with and which ones to avoid.

In the life insurance business, change is hard. Life insurance policies are, for the most part, long-term contracts. Even a term life policy can last 30 years. Whole life insurance, and most universal life insurance policies can last 50 or 60 years, or longer. Whole life insurance, in particular, is guaranteed to age 121. If you’re a life insurance company, getting out of that business is painful. So, the goal is to arrange things so that you don’t have to get out of the business. You change with the times. You alter your investment strategy. You adapt to current market conditions. You adopt new technologies. You can sort of tell who is falling behind by the way they resist change. Insurance companies that resist predictive modeling, for example, are setting themselves up for The House Of Pain. Likewise, life insurers banking on 6% bond rates are going to get crushed when their mean-reversion pricing crashes back to reality.

If you’re in the market for life insurance, these are things to concern yourself with. And, your agent should be concerned about them right along with you. If not, he’s missing the boat.

David Lewis

This post brought to you by //The Rogue Agent//. David has been a life insurance agent, and worked with some of the oldest and most respected mutual life insurance companies in the U.S., since 2004. Learn more about him and his business, here.