A looming retirement crisis, lengthening life expectancies, and near-zero interest rates can make a CEO’s job more than interesting at a life insurance company, even a top-rated, 162-year-old firm like Mass Mutual, based in Springfield, Mass. Roger Crandall, CEO for the past three years, has turned in knockout results during a tough time for the industry as the slow economy has pushed insurance ownership rates to historic lows. Crandall, 48, brings a strong pedigree to the job: His father was a longtime Mass Mutual agent, and his uncle is former American Airlines CEO Robert Crandall. He talked recently with Geoff Colvin about the future of federal entitlements, why interest rates could stay low longer than you expect, thinking of Apple and Amazon as competitors, and much else. Edited excerpts: j
Q: The ownership rate of life insurance is near a 50-year low. Why?
A couple of things are happening. People used to get it at work, at least a base level of coverage, and that increasingly isn’t there, or people are working at smaller companies that don’t offer it. Also, we’ve seen the number of licensed insurance agents in the country decline quite a bit, and let’s face it, people wake up in the morning and say, “I want to go buy an iPod” or “I want to go buy a Samsung Galaxy 4S,” but who wakes up and says, “Today’s the day I’m going to buy life insurance”?
It’s the old saying — life insurance is sold, not bought.
And the data actually bears that out.
In the slow economy of the past several years, Mass Mutual has had some of its best years ever. What’s the explanation?
A couple of things. We’re a mutual company, which means we’re owned by our policy owners. We don’t have stockholders. So we’re 100% aligned with our customers, and that’s unusual in a financial firm these days. As people began to look at what happened in the financial crisis and they understood what a mutual company was, they liked that. We’ve done a pretty good job of showing them the value of our products — we pay an industry-leading dividend, for example. Sales of our core life insurance products grew a record 26% last year.
For the industry it’s been a little bit of a tough time because of low interest rates, and they’ve hurt us, but, boy, we’ve been pretty happy with how we’ve been growing.
Whole life insurance is the strategic center of what you do. I would think that might be a tough sell in slow economic times. Has it been?
In the last five years we’ve almost doubled our sales — this slow-growth product has grown at a 13% compound annual growth rate for us. People wouldn’t expect that if they think of it as a slow, old-fashioned product. And you know what? Sometimes things that are old-fashioned are good. One of our bestselling products this past year is a product that’s guaranteed paid up after 10 payments. It also was one of our bestselling products in 1890. It does what it’s supposed to do. If, unfortunately, you pass away early, it protects your family. And if you live, it builds cash value. The shrinking social safety net is weighing on people a little bit, and people are thinking about how they take care of themselves.
Federal entitlement programs are going to have to be cut somehow. Do you have a view about how that’s likely to happen?
I think means testing is somewhat inevitable. I think it’s somewhat inevitable that retirement ages get pushed out. I think it’s very likely that we move to chain CPI [an inflation measure that leads to lower cost-of-living adjustments in Social Security]. I think it’s very unlikely that those entitlements for the least affluent among us are as likely to be touched. I’ve had younger people tell me, “I’m assuming there’s going to be no Social Security.” I think that’s an incredibly unlikely outcome.
Most Americans are not well prepared for retirement. What happens when tens of millions of baby boomers finally have to confront that reality?
They keep working. Now, with the recovery in the markets, we’ve begun to sece people feel better. It’s really interesting. If you start saving about 10% when you start working, everything magically takes care of itself. What Einstein said, one of the most powerful forces in the universe, compound interest, works for you as opposed to against you. We’re a big 401(k) provider, and we have a tool that lets us see how prepared people are. Frankly, younger folks are frequently better prepared just because they’ve started earlier.
Have young people become spooked by the future in a way they didn’t used to be?
Unfortunately, I think, yes. We’ve done surveys that show that young people are really spooked about the stock market. There’s a fundamental distrust, whether it’s the flash crash, insider trading — we’re getting large numbers of young people saying, “We don’t trust the stock market.” That means they’re missing out on one of the key ways they’re going to be able to meet their retirement needs. They are getting the savings, though.
You are a huge investor in high-grade bonds, and those have been paying historically low rates for quite a while now. How much longer will they keep paying those extremely low rates?
I think rates could stay low for longer than people think, for a couple of reasons. First, it’s easy to forget we’re in this amazing period of human history where technology is galloping forward. The iPhone, Facebook (FB), big data, understanding the human genome — you couldn’t hope to live at a cooler time. A lot of those technological advancements drive productivity enhancements, and that by itself could keep rates low. And then you’ve got an aging world [and older people are not heavy borrowers]. Japan is aging more quickly than we are, as is all of Western Europe, and as China will be. So there are reasons for rates to stay low even before you get to the impact of all the central banks in the world. What history teaches us, though, is you don’t know when the turn is going to come, and you don’t know how big it’s going to be. We’re ready for it to happen in six months, and we’re ready for it to happen in six years, or rates could stay low even longer.
Where are you finding better returns?
We’re nervous about how inflation reemerges. We love floating-rate bonds that give us a real return, and if rates start to go up, the coupon will go up. We’ve always been an investor in real estate with the ability to raise rents if inflation goes up. Last year we bought the Hartford’s retirement plan business, which we thought was a great addition to our retirement business. We think that business will earn very attractive returns.
You also have a money management business. What’s the No. 1 topic customers want to talk about?
The last few years it’s been, “Is my money going to be safe?” We tell customers to be aware that the run we’ve seen in bonds is mathematically impossible to have again. You can’t have a yield fall from 2% to negative 3% like it went from 7% to 2%. So when rates do start to go up, and we don’t know when and we don’t know how much, you need to be thinking about how you’re going to be protected. Now we’ve seen big flows into equities for the first time in many years here in the U.S., and that’s good.
Financial services firms have a lot of information about customers, which theoretically means they can be customer-centric in the most rigorous sense. But most firms have not done a good job. How are you planning to make it work?
We have not done the job we need to do there at all. We have talked to people about “just save this and assume this return, and here’s what’s going to happen.” The ability for us to show people more concretely the value of increasing a deferral just a percent, or changing an allocation and showing them the probability of success, is starting to work. We’ve got over 30 different personas of people. Everyone isn’t the same — what might work for you might not work for me. So we need to understand how to show you what’s going to work. This whole behavioral finance kind of approach is beginning to help.
But I look at what companies like Apple (AAPL) and Amazon (AMZN) have done in terms of raising people’s expectations. The fact that I do something three days quicker than a competitor may be irrelevant when people are used to pulling out a smartphone and pushing a button and having something show up at their house that evening in some cases. Our whole game has to be raised. We’re spending a lot of time and money trying to do a better job of that, and the early days look good, but it’s a different world than when I used to just have to worry about the competitors I know. I need to worry about the competitors I don’t know.
The Leadership series: Formerly called “C-Suite Strategies,” this is the latest interview with a top executive by Fortune senior editor-at-large Geoff Colvin. See video excerpts of this interview at fortune.com/leadership — plus find Colvin interviews with Charles Schwab, the team of Jeff Immelt (GE) and A.G. Lafley (P&G), former New York City schools chancellor Joel Klein, Pimco’s Mohamed El-Erian, Humana CEO Michael McCallister, and many more.
This story is from the April 29, 2013 issue of Fortune.
