No. 21: Insurance-Industry Investments in Tobacco

J. Wesley Boyd, David Himmelstein, Steffie Woolhandler. New England Medical Journal 360; 23. June 4, 2009.

Background: The foundations of capitalism have been shaken of late by the colossal mess in the world’s financial systems. Clearly, the benefits of the free market system have matching faults and limitations, which seem to be forgotten by those who advocate private health insurance and a privately funded health care system for medically necessary health care in Canada. Commodification of health care carries with it the potential for higher cost, lower quality, greater inequity and, at times, sinister behavior, particularly on the part of some industries. This month’s e-Rounds focuses on a report and brief correspondence that illustrates the case in point of the insurance industry and its investment in big tobacco.

Methodology and Limitations: This is a letter to the editor of the New England Journal of Medicine. The data described herein is derived from the Osiris database and, as such, the nature and quality of the data reflect any limitations or problems with this data source. Osiris is a comprehensive database of listed companies, banks and insurance companies around the world. In addition to the income statement, balance sheet, cash flow statement and ratios it contains a wide range of complementary information such as news, ownership, subsidiaries, M&A activity and ratings. Moreover, while the interpretations seem apparent, the commentary reflects the perceptions and ethical leanings of three academics, whose views may not reflect those of others. The paragraph below, found in the letter, depicts the financial holdings in five tobacco companies of seven insurance companies all offering health, disability, and long-term care insurance to their customers. One of those insurance companies is Canadian-based. 


Combined, these seven insurance companies are major owners of tobacco stocks valued at $4.45 billion. Sun Life of Canada is the second largest, with total tobacco holdings of $1.02 billion.

Conclusions: Why on earth would an industry that insures its customers for life, health, and disability coverage invest in the largest known contributor to self-induced morbidity and mortality – tobacco and smoking? The authors conclude that this represents the insurance industry’s priorities of profit above health. Although investing in tobacco may seem self-defeating, insurance companies have figured out that they can profit twice, once from the return on their investment in profitable tobacco companies, and twice when they assess smokers higher premiums based on their higher risk of morbidity and mortality. As the authors suggest, insurers profit — and smokers lose — twice over.

Relevance: The insurance industry has its place in the world and Canada, to be sure. However, the public has to be wary when health is considered a commodity and insurers choose profit and making money over our health. Investing in tobacco, while selling life insurance is being stupid like a fox. Markets favour pursuit of profit, not pursuit of social responsibility. With markets, there are always winners and losers. The authors remind us that Milton Friedman wrote, “No trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.” Why then, would anyone see expansion of private insurance for medically necessary health care services in Canada as a good thing to be promoted? For those that pose this question, consider who loses and who gains. We might also ask why we permit insurance industry executives to serve on our health care governance bodies in Canada.

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