The Prudential Insurance Company of America

views updated May 29 2018

The Prudential Insurance Company of America

751 Broad Street
Prudential Plaza
Newark, New Jersey 07102
U.S.A.
(201) 802-6000
Fax: (201) 802-3128

Mutual Company
Incorporated: 1875 as Widows and Orphans Friendly Society
Employees: 105,000
Assets: $163.97 billion

The Prudential Insurance Company of America is the largest insurance company in North America and one of the largest financial institutions in the world. Along with its primary business, insurance, it also operates in securities, investments, residential real estate, employee benefits, home mortgages, and the corporate relocation industry. Prudential provides a broad array of diversified financial services for individuals, groups, and institutions: life, health and disability insurance, annuities and IRAs, estate or financial planning services, mutual funds, security and commodity services, liability insurance, home equity and mortgage services, real estate brokerage, deposit and personal management accounts, and credit card services.

Prudential started business as the Widows and Orphans Friendly Society in 1873 and in two years changed the name to The Prudential Friendly Society. Two years later the name became The Prudential Insurance Company of America. John F. Dryden, the founder of Prudential, studied the activities of the British Prudential Assurance Company, which was offering industrial insurance to workers. Several key elements marked this major innovation in life insurance; one, it only cost pennies a week; two, it protected against lapses in the account by having agents visit the customers at home each week to pick up the premium; three, it was tailored not to the wealthy or middle class but to the workers in industry and commerce. It was not easy to start such an innovative venture in 1875. The severe 1873 depression and the labor disorders of the period made investors wary of new ventures. Unable to find backers in his native New England or in New York, Dryden crossed the Hudson to Newark, New Jersey, and convinced several Newark citizens to purchase $30,000 of capital stock.

The first prospective of the company succinctly set its aims: relief in sickness and accident for people of meager means, pensions for old age, an adult burial fund, and an infant burial fund. The diverse ethnic groups coming to the United States shared a desire to provide a respectful, dignified burial for their loved ones. Dryden’s goal met the immigrants’ cultural need.

In the earliest years of the company the directors failed to recognize Dryden’s vision or organizational talents. As a result he was passed over for president, and Allen L. Bassett was installed. However, Bassett, a real estate broker in Newark, soon had a falling out with the directors. Noah Blanchard, a tanner in Newark, took over as president. As the depression of the 1870s lengthened, Metropolitan Life Insurance (Met), the industry leader, suffered as many customers cancelled their ordinary life policies. In a defensive reaction, in 1879, the Met offered industrial insurance and pirated the Prudential’s best agents. In reaction The Prudential (Pru) opened offices to sell industrial policies in New York. Decades of fierce competition followed. In 1881 Noah Blanchard died, and finally the directors elected John Dryden president by one vote. He served in that position for 30 years. During those years he led Prudential to several major innovations and established a corporate culture that marked Prudential for generations in the future.

Under Dryden’s leadership Prudential enjoyed explosive growth. In 1885 it reported 422,671 policies in force, by 1905 it had 6.49 million. Assets grew from $1.03 million in 1885 to $102.38 million in 1905. Prudential expanded to neighboring states, and in 1909 opened its first international branch in Toronto, Canada.

In 1896 the advertising department created one of the United States most memorable and durable logos. The Rock of Gibraltar plus the slogan, “The Prudential has the strength of Gibraltar,” became familiar to millions of Americans across the generations.

In 1905 a New York state legislative committee under Senator William W. Armstrong opened investigations into the insurance industry with Charles Evans Hughes as chief investigator. The major companies of that day were targets of the investigation into violation of customer interests. The Prudential emerged relatively unscathed.

When Dryden died in 1911, his son Forrest Dryden succeeded to the presidency. Under Forrest’s leadership the company continued its rapid growth. In 1911 insurance in force totaled $2 billion. In 1921, when he resigned, it exceeded $5.6 billion. Corporate assets rose from $259 million to $830 million in 1922.

Control of the company became a problem during Forrest Dryden’s term. With such huge resources and a conservative investment philosophy in a day of wild financial dealing, Prudential assets looked appealing to potential purchasers. Tired of fending off corporate suitors and raiders, the board took the first steps to make the company mutual and to sell the company to its policyholders.

Later in Forrest’s tenure the company suffered several setbacks. World War I drained the company with heavy claims. Then, as a result of the 1918-1919 influenza pandemic, Prudential paid out over $20 million for flu-related deaths. Shortly afterward Forrest Dryden brought scandal to the firm. During a legislative investigation into the insurance industry Forrest appeared ignorant about the most basic operations of the firm and did not satisfactorily explain a conflict of interest he had with certain stocks he held. In 1921 he resigned from Prudential, and Edward D. Duffield became president.

During Duffield’s term Prudential experienced little growth. While it innovated by offering group insurance coverage to home office staff in 1924 and started group health in 1925, the Great Depression strangled most growth. Mortgages valued at $1.5 billion in 1931 bottomed at $787 million in 1935, even though the value of policies in force grew $1.5 billion between 1930 and 1935. In 1938, when Duffield died suddenly, he left a company still tremendously successful but no longer an exciting leader in the industry.

Franklin D’Olier succeeded Duffield as president. He concluded that deadwood littered the managerial ranks of the Pru. Privately he told his family that he would no longer urge young, ambitious men to join the Prudential family; seniority so dominated corporate policy that creativity and efficiency suffered.

While D’Olier recognized the problems Prudential faced with its conservative managerial corps he could never attend to them. A larger crisis commanded his tour of duty at the Pru. Hitler’s actions in Europe and the U.S. commitment to World War II drew more and more of D’Olier’s attention. The government repeatedly called on D’Olier to help with the war efforts. He helped organize the New York regional civil defense and later served on the Strategic Bombing Survey Commission.

Two major lights illuminated Prudential during the war. First, in 1942 the Pru finally converted to a mutual company, a process started in 1915. Second, Prudential benefited from the talents of Edmund Whittaker, who had joined the company in 1928, when D’Olier feared the Prudential was about to run out of actuaries. Whittaker moved rapidly through the ranks and, as head of group sales, helped Prudential seize the forefront in developing group sales. He led Prudential into major medical coverage, group credit insurance, and group insurance in multiple employer collective bargaining units. He typified the young executives who shortly would remake Prudential and the industry. When Whittaker characterized actuaries as the “engineers of insurance,” he explained his own successes. In a speech to Prudential agents, reported in William Carr’s For Three Cents a Week, Whittaker told them to look beyond the next premium. “We who are trying to compete with the ideas of nationalized programs are required to be social engineers. So far we have been good salesmen and good managers. We have not measured up too well as social engineers. If we don’t do better, our system of private enterprise will pass by default to social planning.”

In 1946 Prudential entered a new era. Carroll M. Shanks took office as Prudential’s seventh chief executive officer. He did more to energize and remake the company than all the men since Dryden. At 40 years of age, he was the youngest president since Dryden, the man he most resembled. Shanks had joined Prudential in 1932 and was known for his unorthodox methods. During his 15 years as president he remade the company. He led the company into a bold decentralization that stunned the industry. He developed a parade of new products. He adopted innovative investment strategies that won a significant advantage for Prudential and its customers, and set up a personnel system that became the talent bank of the industry.

Shanks knew how stultifying the seniority system was and believed that only massive pruning would save the company. Within months of his taking office, resignations or early retirements were announced down to the level of middle management. Orville Beal, a future president of Prudential and one of the first to be promoted by Shanks, recalled those days in Carr’s From Three Cents a Week. “The change was electric. Prudential held great possibilities, great potential, which was not yet realized.... We didn’t blaze many trails in the insurance industry before Shanks took over.... He shook up the organization.... He got us going again.”

In mid-1945 he drastically reorganized the Pru with massive decentralization. Shanks opened regional home offices across the nation. Each new regional home office would have its own senior vice president in charge and with total responsibility for the region. He would operate as president of a small company. He would handle most areas—sales, investments, general management, and all issues from policy to claims. Newark would retain the corporate senior officers, actuaries, and evaluation and staff departments. The reorganization dealt with many of the problems in Newark. It attacked the excessive specialization that separated workers and produced indecision; it cut the many levels between the president and operating employees; it eliminated layers of red tape and provided new opportunities for energetic and creative managers.

Each regional home office occupied a striking modern office building that dominated its city and told the region that the Pru had arrived in style and strength. Quickly the regional home offices, the first opened in Los Angeles in 1948, helped Prudential establish a new national presence. Policy called for the regional office to invest its dollars in the local community. With the advent of each of the eight home regional offices, Prudential sales jumped and investment income also rose sharply. In the first year regional sales in Los Angeles went up 20%.

The regional home offices enabled Shanks to freeze out inert executives. As the new leaders trained in the regional home offices spread out across the land, they created a multitude of new products, often tailor-made to the particular markets of their region. Quickly Shanks moved them to the national scene. The Prudential earned more on its investments. In 1962 the life insurance industry averaged a return of 4.29% on all invested assets, while the Prudential averaged 4.65%, producing an additional $60 million for the Prudential.

The creative spurt that Shanks excited extended to almost all products. Group pensions sold $44 million in 1945 and by 1955 exceeded $194 million; group life sales exceeded $589 million in 1949, a record for both Pru and the industry. The Prudential set up employee security programs that combined group life and health insurance. The Pru changed major medical insurance in the 1950s when it revised the method for computing the deductible. In 1951 the Pru’s district agents voted to go on strike, the first formal job action by a white collar union in the nation. The American Federation of Labor led the workers for three months as they negotiated for improvements and succeeded in obtaining recognition of the union as their bargaining agent.

Under Shanks Prudential revised its investment strategies. After 1958 the Pru ceased to buy bonds on the market and instead negotiated separate loans with corporations for higher rates, while the corporations received more rapid, less costly, and more flexible financing. In 1956 Shanks created a commercial and industrial loan department to seek out small business loans.

Shanks consistently looked for niches where the Prudential could risk a small amount yet increase its average return significantly above its competitors. For instance, in 1950 Prudential began buying common stocks after permissive legislation opened up this opportunity. In 1964 Prudential had 3% of its assets in common stock and realized $75 million in capital gains.

When Shanks retired in 1960 the Prudential board named Louis R. Menagh Jr. as chief executive officer. At 68 he was one of the oldest to win the post but also the first to work to the top after starting as the lowest clerk. Menagh retired in October 1962, and the board named Orville E. Beal president. Beal exemplified the personnel advantages of decentralization. During the years he headed the regional home office in Minneapolis, Minnesota, he dealt with the diverse issues that he then faced in Newark. As a result, he was willing and able to pursue Shanks’s bold vision.

In 1964 Prudential sold its first group variable annuity policy. Those annuities were invested entirely in common stocks and were seen as a much more attractive hedge against inflation than prior annuities, usually based on bonds, mortgages, and similar investments. In 1967 Beal announced that Prudential had finally surpassed the Metropolitan as the world’s largest insurance company. The Met announced total assets of $23.51 billion while the Prudential announced $23.6 billion.

One of the great strengths of Prudential, from the earliest Dryden days, was its service to customers across the broadest possible economic range. The company sold industrial insurance to blue collar workers and offered ordinary life policies to white collar workers. With increases in worker income it was no longer necessary to market industrial policies featuring weekly premiums. In 1968 Beal abandoned the Pru’s last pay-by-the-week policies, closing an important chapter in the company’s history.

In 1968 Prudential established PIC Realty Corporation as a wholly owned subsidiary that would own or lease commercial real estate through joint ventures with established real estate developers. The Prudential would share profits directly as a principal in real estate development.

Beal stepped down in 1968. He turned the keys over to Donald MacNaughton, who led the company through some of its most expansive innovations. He particularly addressed issues of corporate social responsibility. In July 1967 Newark suffered terribly after one of the worst urban riots in U.S. history. Prudential was especially vulnerable, located in downtown Newark. Employees were afraid to go to work; middle managers resisted moving to the region. MacNaughton pledged to use Prudential’s resources to help with problems of the urban centers. One of his first acts as president was to pledge $50 million to Newark. He helped the insurance industry pledge $1 billion to help U.S. cities, later increased to $2 billion. In his nine years as CEO, MacNaughton developed an array of new products for the company and plunged it into the international marketplace ahead of most of its competition. In 1969 Prudential celebrated total assets of over $25 billion; when MacNaughton retired in 1978 reported assets were $35.8 billion.

The New Jersey legislative revision of insurance laws in 1967 broadened the operations of life insurance companies. Henceforth they would be permitted to offer fire and casualty coverage, individual variable annuity plans, direct investment in real estate, investment management services, mortgage investing, and owning or leasing business or communication equipment. The Prudential took advantage of these new opportunities. MacNaughton knew that several trend lines boded ill for the life insurance industry; with inflation corroding the pay checks of U.S. workers, each year fewer customers saw great value in policies that pledged fixed payments. Life insurance assets grew 87% between 1950 and 1960 but between 1970 and 1980 grew only 70%. MacNaughton knew that one of Prudential’s greatest asset was its corps of agents, who needed new products to sell. His vision was to provide the new middle class consumer with all insurance needs at one stop.

In 1970 Prudential entered the property and casualty insurance business. Unable to secure all the necessary state licenses and without a sufficiently large body of trained and certified agents, Prudential contracted with Kemper Insurance. Kemper provided “shell” companies that enabled Prudential to set up business in 26 states. Analysts at the time saw the arrangement as an astute move for the Pru. Homeowners insurance policies were often written for three to five years, and corporate profits suffered from inflation. Prudential wrote all its policies at current rates. The Pru carefully selected the geographic regions it would enter to minimize losses. However, the retraining costs to certify 30,000 agents were great. By 1972 Prudential dropped its contract with Kemper and continued in the casualty and fire field through its holding company subsidiary, Prudential Property and Casualty Insurance Company.

MacNaughton continued the search for higher returns in a period of inflation and stagflation. In 1973 the Pru formed Prudential Reinsurance Company (PRURE), insuring other insurance companies against extraordinary losses. In 1974 Prudential purchased CNA Nuclear Leasing, renaming it Prudential Lease. In its first year contracts grew by 88% and it returned 16% on equity. PRURE gave the Prudential its first entrance into the international market. The global commercial reinsurance business was virtually unregulated, and PRURE could be run easily with minimal administrative costs. MacNaughton felt strongly about the Prudential’s need to go multinational. Quoted in Business Week, February 9, 1976, he stated, “This organization cannot continue to be a successful domestic company if it doesn’t know a hell of a lot more about what’s going on abroad than it does now. If we get so that we don’t understand multinational business, then multinational business will eventually find someone else who does.”

In 1976 Prudential acquired Hanbro Life Assurance Ltd. of Britain. It was Prudential’s vehicle to enter the European Common Market, since the Pru expected that all member state insurance companies would soon be permitted to operate in all member states. MacNaughton developed many more product lines between 1973 and 1978. PIC Realty Canada, Ltd. owned and developed property in Canada. Prudential Health Care Plan operated health maintenance organizations. Pru Capital Management provided administration and management services to Prulease. Le Rocher, Compagnie de Reassurance wrote reinsurance in Europe. Pru Funding offered long term loans and operation leases for Prulease. Pru Supply contracted to supply fossil fuels or other inventories. Prudential General Insurance Company provided group casualty and property protection, and Pru Service Participacos, a wholly owned Brazilian subsidiary, provided services to another Brazilian property and casualty company.

MacNaughton retired in 1978 and was succeeded as CEO by Robert Beck. Beck joined Prudential in 1951 as an agent. During Beck’s tenure the lapse rate on life policies continue to grow. The Pru had always relied on the assets accumulated from whole life sales to fuel the growth of assets. Beck needed to find new sources to replace those lost to the decline in whole life policies. Beck attacked the problem by entering new markets. The company formed Dryden and Company and Gibraltar Casualty Company to sell to the surplus lines market the coverage of unusual and difficult insurance risks. Pru also formed additional subsidiaries to market group and commercial property and casualty insurance. In 1979 Prudential signed with Sony Corporation to form Sony-Prudential to sell life insurance in the Japanese market. Beck also led Prudential in another investment opportunity; PRUCO formed a subsidiary, P.G. Realty, to purchase, sell, and operate farmlands in Nebraska. Later other subsidiaries were formed to operate farm lands in Florida.

Beck’s most controversial acquisition came when he purchased the Bache investment and brokerage house in 1981. Bache was to be a troubled acquisition in a specialized industry new to the company. The Prudential now could sell money market funds, mutuals, tax shelters, real estate partnership, as well as stocks and bonds, all hedges against inflation. With Merrill Lynch selling life insurance, Citibank selling group life insurance through its credit cards, and American Express owning its own insurance companies, Prudential felt obliged to respond. Yet customers saw each of the various functions differently and ultimately did not trust the wisdom of a single adviser, seeing conflicts of interest.

Prudential continued to search for ways to maximize income from investments. In 1981 the company formed Property Investment Separate Account, a vehicle to enable pensions funds to invest in real estate. Pru developed successful investment initiatives: SMALLCO invested in firms under $200 million, and MIDCO in firms between $75 and $460 million capital.

Under Beck the Prudential continued to diversity, opening health maintenance offices in Oklahoma; Atlanta, Georgia; and Nashville, Tennessee. New life insurance subsidiaries were formed in Texas, Arizona, and Illinois. These new insurance companies did not need to rely upon whole life policies to accumulate capital. The company formed the Mircali Asset Management firm to manage global investments for other institutions.

In September 1986 Robert Beck retired. His successor as CEO and chairman of the board, 54-year-old Robert C. Winters, had joined Prudential in 1953. Winters took over after several decades of unprecedented growth in the company. Prudential’s assets had more than doubled since 1978. After many years of spinning off a seemingly endless line of subsidiaries and holding companies, Winters saw his tenure as a time to digest and rationalize the gains of the earlier years. A new corporate strategy needed to be articulated that made sense out of the recent spate of expansion, one that gave form to future plans.

In 1987 the company reorganized its Prudential Realty Group into four new firms: Prudential Property Company, Prudential Acquisition and Sales Group, Prudential Mortgage Capital Company, and the Investment Service Group. Prudential offered its customers virtually every variety of insurance known, both for individuals and groups; it offered property and casualty insurance as well as residential mortgages. Under Winters it acquired Merrill Lynch Realty and Merrill Lynch Relocation Management and offered customers a nationwide system of real estate brokers. Pru sold its shares in Sony-Prudential to Sony. It formed a Prudential Life Insurance Company Ltd. in Japan, which offered a full range of individual life policies. Other subsidiaries were formed or acquired to sell policies in Spain, Italy, South Korea, and Taiwan.

The October 1987 panic on the market cost Prudential $1 billion in paper value, but it also marked the end to runaway leveraged buy-outs (LBOs) and massive mergers and acquisitions. The managers at the Pru made millions for the company in the heady days of LBOs. From one financial package put together to help sell a company, the Pru earned $200 million on an investment of $650 million.

There was, however, a negative side to the boom years of the market. Many of the sophisticated financial packages the Prudential and others crafted were tax havens for the customers. When the 1986 tax reform act eliminated the rationale for the many tax shelters, they were quickly abandoned by customers. Also, the packages designed by the financiers were often so sophisticated that neither the customers nor the agents marketing the devices could understand them. Many of the innovations tried by Prudential and others continued to falter. The Prudential pumped $2.4 billion into Bache with continual losses. In 1989, a difficult year for the Pru, Bache lost $48 million.

When Prudential started in business in 1870s, it faced fierce competition with the Metropolitan and other insurance companies. As it approaches the 21st century it faces a new kind of competition and a very difficult competitive world. Under President Joseph Melone, as it sets its strategy to enter the financial services industry, it not only enters competition against U.S. giants such as American Express, Sears, General Electric Credit Corporation, PrimeAmerica, and Merrill Lynch, but also faces fierce competition from overseas financial-service titans.

In 1990 Ronald D. Barbero was elected president to replace Joseph Melone, who left after six years in that office. The Pru sees its future focused around products that are tailored to the needs of newly sophisticated financial consumers. It has made a great success out of its guaranteed income contract that remakes the way the middle-class consumer looks at income investments. It is building a new service industry around its acquisition of Merrill Lynch’s real estate business. Its agents will have ready access to consumers as they execute the largest purchase of their lives. Pru will not only offer mortgages, appraisal services, title insurance services, home equity loans, loans to furnish new homes, and homeowner’s life and casualty insurance, but will also offer industrial relocation services.

Principal Subsidiaries

Gifford Fong Associates, Inc.; Merrill Lynch Mortgage Corporation; PIC Realty Canada, Ltd,; PRUCO, Inc.; PRICOA International Bank, S.A. (Luxembourg): The Prudential Life Insurance Company, Ltd. (Japan); AMODA, Sdn. Bhd. (Malaysia, 40%); HSG Health Systems Group Limited (Canada); Jennison Associates Capital Corp.; PRICOA Vita S.p.A. (Italy); PRUCO, Inc.; PRUCO Life Insurance Company; Premisys Real Estates Services, Inc.; PRUCO Life Insurance Company of Illinois; Prudential Fund Management Canada Ltd.; Prudential of America General Insurance Company (Canada); Prudential Overseas Funding Corporation N.V. (Netherlands Antilles); U.S. High Yield Management Company; Prudential Realty Securities II, Inc.; Prudential Special Equity Fund (Luxembourg, 47%); PruServicos Participacoes, S.A. (Brazil); Tesser-act Corporation; The Prudential Insurance Company of Korea, Ltd.; The Prudential Insurance Company of New Jersey; The Prudential Investment Corporation; The Prudential Life Insurance Company of Arizona; The Prudential Real Estate Affiliates, Inc.; Prudential Mutual Fund Management, Inc.

The Prudential Insurance Company of America

views updated Jun 11 2018

The Prudential Insurance Company of America

751 Broad Street
Newark, New Jersey 07102
U.S.A.
(973) 802-6000
(800) 353-2847
Fax: (973) 802-3128
Web site: http://www.prudential.com

Mutual Company
Incorporated: 1873 as Widows and Orphans Friendly Society
Employees: 105,000
Total Assets: $279.42 billion (1998)
NAIC: 524113 Direct Life Insurance Carriers; 524114 Direct Health & Medical Insurance Carriers; 524126 Direct Property & Casualty Insurance Carriers; 524298 All Other Insurance Related Activities; 52599 Other Financial Vehicles; 523930 Financial Planning Services

The Prudential Insurance Company of America is one of the largest diversified financial institutions in the world and, based on total assets, the largest insurance company in North America. Along with its primary business, insurance, the company also operates in securities, investments, residential real estate, employee benefits, home mortgages, and the corporate relocation industry. In 1999 Prudential was in the process of reorganizing as preparation for a transition to demutualization and public ownership, pending regulatory approval, in 2000.

A Major Innovator in Life Insurance: 1870s–1900s

A Yale dropout named John F. Dryden established the forerunner of Prudential in 1873, naming it the Widows and Orphans Friendly Society. Two years later, influenced by the British Prudential Assurance Company, Dryden changed his company’s name to The Prudential Friendly Society (the company settled on its current name in 1877). When Dryden visited British Prudential at this time, he was impressed by several key elements, including the British company’s offering of low-cost industrial insurance for laborers; the fact that agents collected premiums each week from customers at home; and that the company served not the wealthy or middle class, but the working class. Unable to find backers in his native New England or New York to build the company he envisioned, Dryden crossed the Hudson to Newark, New Jersey, and convinced several Newark citizens to purchase $30,000 of capital stock.

The first prospectus of the company succinctly set forth its aims: Relief in sickness and accident for people of meager means, pensions for old age, adult and infant burial funds—all goals which corresponded closely to the needs of the diverse ethnic groups then immigrating to the United States. Yet the company’s first directors failed to recognize Dry den’s vision or organizational talents. As a result, Newark real estate broker Allen L. Bassett was installed as president. His tenure was short-lived, however, and Noah Blanchard, a tanner, took the helm. In 1881, when Blanchard died, the directors finally elected John Dryden president by one vote. He served in that position for 30 years. During those years, he led Prudential to several major innovations and established a corporate culture that marked Prudential for generations.

Under Dryden’s leadership, Prudential enjoyed explosive growth. In 1885, it reported 422,671 policies in force; by 1905 it had 6.49 million. Assets grew from $1.03 million in 1885 to $102.38 million in 1905. Prudential expanded to neighboring states, and, in 1909, opened its first international branch in Toronto, Canada. In 1896, the company’s advertising department created Prudential’s longstanding logo and slogan: the Rock of Gibraltar accompanied by the words, “The Prudential has the strength of Gibraltar.” Both were chosen to express the solidity of the products the company offered. The company’s image was further bolstered by the outcome of a New York state legislative committee investigation under Senator William W. Armstrong in 1905. While the major companies of the day became targets of the investigation into violation of customer interests, Prudential emerged relatively unscathed.

When Dryden died in 1911, his son, Forrest Dryden, followed him as president. Under Forrest’s leadership, the company continued its rapid growth.

Mutualizing and Surviving: 1910s–30s

However, control of the company became and remained a problem during Forrest Dry den’s term. Its huge resources and conservative investment philosophy made Prudential’s assets look appealing to potential purchasers. Tired of fending off corporate suitors and raiders, the board took its first steps to make the company mutual and sell the company to its policy-holders.

Later in Forrest’s tenure, World War I drained the company with its heavy claims. Then, as a result of the 1918–19 influenza pandemic, Prudential paid out over $20 million for flu-related deaths. Shortly afterward, Forrest Dry den brought scandal to the firm because of a conflict of interest he had due to certain stocks he held. By the time he resigned in 1921, company totals exceeded $5.6 billion, an increase of $3.6 billion in ten years. Corporate assets rose from $259 million in 1911 to $830 million in 1922. Edward D. Duffield became Prudential’s next president.

During Duffield’s term, Prudential stayed much the same. While the company innovated by offering group insurance coverage to home office staff in 1924 and started group health in 1925, the Great Depression strangled most growth. Mortgages valued at $1.5 billion in 1931 bottomed at $787 million in 1935, even though the value of policies in force grew $1.5 billion between 1930 and 1935. In 1938, when Duffield died suddenly, he left a company still tremendously successful, but no longer a leader in the industry.

Franklin D’Olier followed Duffield as president. While D’Olier recognized the problems Prudential faced with its conservative managerial corps, he never succeeded in attending to them. A larger crisis demanded his attention: Hitler’s actions in Europe and the U.S. commitment to World War II. D’Olier helped organize the New York regional civil defense and later served on the Strategic Bombing Survey Commission. However, in 1942, Prudential finally converted to a mutual company, completing the process started in 1915, and, in 1928, it entered the market for major medical coverage, group credit insurance, and group insurance in multiple employer-collective bargaining units. The group sales department was the brainchild of Edmund Whittaker, an actuary who had joined the company in 1928, and who conceived of actuaries as the “engineers of insurance.”

A New Era of Decentralization in the 1940s

In 1946 Prudential entered a new era. Carroll M. Shanks took office as Prudential’s seventh CEO. At 40, he was the youngest president since Dryden. Shanks had joined Prudential in 1932 and was known for his unorthodox methods; during his 15 years as president, he remade the company, leading Prudential into a bold decentralization that stunned the industry.

Within months of Shanks taking office, resignations or early retirements were announced down to the level of middle management. Next, in 1948, he opened regional home offices across the nation, each with its own senior vice-president in charge and with total responsibility for the region. Newark retained the corporate senior officers, actuaries, and evaluation and staff departments, but each vice-president handled local sales, investments, general management, and issues from policy to claims.

The reorganization dealt with many of the company’s problems. It attacked the excessive specialization that separated workers and stymied activity; it cut the many levels between the president and operating employees; it eliminated layers of red tape and provided new opportunities for energetic and creative managers. Each regional home office occupied a striking modern office building that dominated its city and told the region that Prudential had arrived in style and strength. Quickly the regional home offices helped Prudential establish a new national presence. Corporate policy called for the regional office to invest its dollars in the local community. With the inception of each of the eight home regional offices, Prudential’s sales jumped and investment income rose sharply. In 1948, the first regional sales office in Los Angeles boosted revenue in that region by 20 percent. Group pension sales totaled $44 million in 1945, and, by 1955, exceeded $194 million; group life sales exceeded $589 million in 1949, a record for both Prudential and the industry.

As regional leaders exercised their autonomy, they created a multitude of new products, many tailor-made to their regional markets. Shanks adapted the best innovations to the national scene. Prudential set up employee security programs that combined group life and health insurance. In addition, it changed major medical insurance in the 1950s when it revised the method for computing the deductible. The company also underwent internal change. In 1951 Prudential’s district agents voted to go on strike, the first formal job action by a white collar union in the nation. The American Federation of Labor led the workers for three months as they negotiated for improvements and succeeded in obtaining recognition of the union as their bargaining agent.

Company Perspectives:

We’re building on our traditional strengths in insurance, while expanding our services in investments, banking and real estate, to ensure we ‘II meet the diverse needs of our customers —both individuals and institutions —today and in the future.

Investment Strategies for the 1960s

Under Shanks, Prudential also revised its investment strategies. Shanks consistently looked for niches where Prudential could risk a small amount yet increase its average return much above that of its competitors. In 1950 the Prudential began buying common stocks and, by 1964, had three percent of its assets in stock on which it realized $75 million in capital gains. The strategy was successful; by 1962, the life insurance industry averaged a return of 4.4 percent on all invested assets. Prudential averaged 4.7 percent, producing an additional $60 million in income for the company. After 1958, Prudential ceased to buy bonds in the market and instead negotiated separate loans with corporations for higher rates on which the corporations received more rapid, less costly, and more flexible financing. In 1956, Shanks created a commercial and industrial loan department to seek out small business loans.

When Shanks retired in 1960, the Prudential board named Louis R. Menagh, Jr., as chief executive officer. At 68 one of the oldest to win the post, Menagh had worked his way to the top from a position as clerk. Menagh retired in October 1962, and the board named Orville E. Beal president. Beal had headed the regional home office in Minneapolis, Minnesota, and was committed to Shanks’s bold vision.

In 1964, Beal led Prudential in selling its first group variable annuity policy. These annuities were invested entirely in common stocks and were, thus, a much more attractive hedge against inflation than prior annuities based on bonds, mortgages, and similar investments. In 1967, Prudential surpassed the Metropolitan as the world’s largest insurance company; total Met assets amounted to $23.51 billion while Prudential announced $23.6 billion. In 1968, it established PIC Realty Corporation as a wholly owned subsidiary that owned and leased commercial real estate through joint ventures with established real estate developers. Prudential shared additional profits as a principal in real estate development.

Beal stepped down in 1968, the same year the company abandoned its original pay-by-the-week policies, closing an important chapter in the company’s history. He turned his leadership role over to Donald MacNaughton, who led the company through some of its most expansive innovations. MacNaughton particularly addressed issues of corporate social responsibility. When Newark suffered terribly after one of the worst urban riots in U.S. history, MacNaughton pledged to use Prudential’s resources to help with the problems of urban centers and gave $50 million to Newark. He convinced the insurance industry to pledge $1 billion in help to U.S. cities, an amount later increased to $2 billion. In his nine years as CEO, MacNaughton developed an array of new products for the company and plunged it into the international marketplace, well ahead of most of the competition. In 1969, Prudential celebrated total assets of over $25 billion; when MacNaughton retired in 1978 reported assets were $35.8 billion.

Opportunities Amidst Inflation and Stagflation: 1970s

When the New Jersey legislature revised insurance laws in 1967, it broadened the operations of life insurance companies, permitting them to offer fire and casualty coverage, individual variable annuity plans, direct investment in real estate, investment management services, mortgage investing, and to own or lease business or communication equipment. Prudential took advantage of these new opportunities; inflation was corroding the pay checks of U.S. workers and fewer customers wanted policies that pledged fixed payments. Instead Prudential aimed its sites at the new middle-class consumer, aiming to meet all their insurance needs.

In 1970 Prudential entered the property and casualty insurance business. Unable to secure the necessary state licenses, and without a sufficiently large body of trained and certified agents, the company contracted with Kemper Insurance to provide “shell” companies in 26 states. Homeowners insurance policies had traditionally been written for three to five years, and corporate profits suffered from inflation. Instead, Prudential wrote all its policies at current rates. To minimize losses, it carefully selected the geographic regions it entered. However, the retraining costs of certifying 30,000 agents were great. By 1972, Prudential dropped its contract with Kemper and continued in the casualty and fire field through its subsidiary Prudential Property and Casualty Insurance Company.

MacNaughton continued the search for higher returns in a period of inflation and stagflation. In 1973 Prudential formed Prudential Reinsurance Company, insuring other insurance companies against extraordinary losses. In 1974 Prudential purchased CNA Nuclear Leasing, renaming it Prudential Lease. In its first year, contracts grew by 88 percent and returned 16 percent on equity. Prudential Reinsurance gave Prudential its first entrance into the international market.

In 1976 Prudential acquired Hanbro Life Assurance Ltd. of Britain and entered the European Common Market. MacNaughton developed many more product lines between 1973 and 1978. PIC Realty Canada, Ltd. owned and developed property in Canada. Prudential Health Care Plan operated health maintenance organizations. Pru Capital Management provided administration and management services to Prulease. Le Rocher, Compagnie de Reassurance, wrote reinsurance in Europe. Pru Funding offered long-term loans and operation leases for Prulease. Pru Supply contracted to supply fossil fuels or other inventories. Prudential General Insurance Company provided group casualty and property protection, and Pru Service Participacos, a wholly owned Brazilian subsidiary, provided services to another Brazilian property and casualty company.

MacNaughton retired in 1978 and was succeeded by Robert Beck, who had joined Prudential in 1951 as an agent. Beck attacked the problem of the continuing lapse rate on life insurance policies by entering new markets. The company formed Dryden and Company and Gibraltar Casualty Company to sell coverage of unusual and difficult insurance risks to the surplus lines market. Prudential also formed additional subsidiaries to market group and commercial property and casualty insurance. In 1979 Prudential signed with Sony Corporation to form Sony-Prudential to sell life insurance in Japan. Beck also led Prudential in another investment opportunity; PRUCO formed a subsidiary, P.G. Realty, to purchase, sell, and operate farmlands in Nebraska. Later, other subsidiaries were formed to operate farm lands in Florida.

Beck’s most controversial acquisition came when he purchased the Bache investment and brokerage house in 1981. With Bache, Prudential could sell money market funds, mutuals, tax shelters, real estate partnerships, as well as stocks and bonds, all hedges against inflation. Prudential-Bache hired George L. Ball, former president of E.F. Hutton & Company, as its chair and CEO. Ball, a Wall Street star known for his aggressive and innovative tactics as a broker, led the brokerage firm on an expensive, but ultimately failed effort to break into the top levels of Wall Street investment banks for the next nine years.

Unprecedented Growth and Scandal: 1980s

Throughout the 1980s, Prudential continued to search for ways to maximize income from its investments. In 1981, the company formed Property Investment Separate Account, a vehicle to enable pension funds to invest in real estate. It also developed several successful investment initiatives: SMALLCO invested in firms under $200 million, and MIDCO in firms between $75 and $460 million in capital. Beck led Prudential in a continued effort to diversify, opening health maintenance offices in Oklahoma, Atlanta, Georgia, and Nashville, Tennessee. New life insurance subsidiaries were formed in Texas, Arizona, and Illinois. The company also formed the Mircali Asset Management firm to manage global investments for other institutions.

In September 1986, Robert Beck retired. His successor as CEO and chairman of the board, 54-year-old Robert C. Winters, had joined Prudential in 1953. Winters took over after several decades of unprecedented growth in the company. Prudential’s assets had more than doubled since 1978. After many years of spinning off a seemingly endless line of subsidiaries and holding companies, the company now took time to evaluate and integrate the gains of earlier years. A new corporate strategy needed to be articulated to make sense out of the recent period of expansion, one that gave form to future plans.

In 1987 the company reorganized its Prudential Realty Group into four new firms: Prudential Property Company, Prudential Acquisition and Sales Group, Prudential Mortgage Capital Company, and the Investment Service Group. Prudential offered its customers virtually every variety of insurance known, both for individuals and groups. That year, it acquired Merrill Lynch Realty and Merrill Lynch Relocation Management and offered customers a nationwide system of real estate brokers. Prudential sold its shares in Sony-Prudential to Sony. It formed a Prudential Life Insurance Company Ltd. in Japan, which offered a full range of individual life policies. Other subsidiaries were formed or acquired to sell policies in Spain, Italy, South Korea, and Taiwan.

The October 1987 panic on the market cost Prudential $1 billion in paper value and marked at least a temporary end to runaway leveraged buyouts and massive mergers and acquisitions. The managers at Prudential had made millions for the company in the heady days of LBOs. From one financial package put together to help sell a company, Prudential earned $200 million on an investment of $650 million.

There was, however, a negative side to the boom years of the market. Many of the sophisticated financial packages Prudential crafted were initially tax havens for its customers. But when the 1986 tax reform act eliminated the rationale for the many tax shelters, customers quickly abandoned them. In addition, the packages designed by the financiers were often so sophisticated that neither the customers nor the agents marketing the devices could understand them, and many of the innovations tried by Prudential faltered. Prudential pumped $2.4 billion into Bache Group, for example, with continual losses. In 1989, a difficult year for Prudential, Bache lost $48 million. In November 1990, Prudential-Bache announced that it was cutting back on its investment banking operation by about two thirds, having made the decision to reorganize the firm to focus on its strengths in the retail brokerage business. In early 1991, with losses totaling more than $250 million and amid lawsuits relating to selling real estate limited partnerships, Ball resigned. Hardwick Simmons, former president of Shearson’s Private Client Group, took over leadership of Prudential Securities Inc., renamed as part of its restructuring.

During Simmons’s first year in charge of Pru Securities, the firm launched an aggressive ad campaign and enjoyed record earnings. In 1993 profits reached nearly $800 million. Yet Simmons had also to deal with the private lawsuits of angry investors who had lost hundreds of millions of dollars in limited partnerships sold by Pru Securities brokers, several potentially damaging class action suits, and an SEC investigation. The cause of his trouble: some $6 billion of limited partnerships sold in the 1980s to more than 100,000 investors now valued at only a fraction of their original selling price. In response to the negative publicity, Prudential retreated behind a shield of secrecy, but with probes into the limited partnerships by state securities regulators expanding, the company accepted various settlements, including public censure in 1992. Prudential remained under scrutiny for the next several years for “churning,” inducing policy holders to trade up to more expensive policies without explaining the costs. The investigation, concluded in 1996, and involving regulators from 45 states, assessed Prudential a $35 million fine and set up a restitution plan for 10.7 million policyholders. The settlement, approved by a New Jersey district court judge in 1997, led to an eventual payment in excess of $2 billion.

The problems at Prudential Securities coincided with a downturn in profits for the brokerage firm. Profits at Prudential Mortgage dropped, too, with a decline in mortgage lending activity and a rise in interest rates. Sales of life insurance to individuals diminished as well. Prudential’s reinsurance business and property and casualty units had been hard hit by several natural disasters, including Hurricane Andrew. In 1994 insurance operations lost $907 million as a result of the North-ridge, California earthquake. The board took advantage of Winters’s retirement in late 1994 to bring in new “outsider” management in an attempt to resolve its problems. Arthur Ryan came from Chase Manhattan, where he had overseen the marketing of mutual funds and insurance. Before that, he had led a large sales operation at Control Data. With $300 billion in assets, Prudential also began to take steps to boost efficiency, bringing in Coopers & Lybrand, McKinsey, Deloitte & Touche, and other consultants. It announced plans to shed its reinsurance and mortgage units and to liquidate its $6 billion real estate portfolio. Real estate divestitures began in 1997 with the sale of the company’s property management unit and its Canadian commercial real estate business. The following year, it sold Prudential Center complex in Boston.

The Move to Go Public in the Year 2000

In 1998, Ryan went before New Jersey’s insurance commissioner to lobby for passage of a law that would allow a mutual insurance company to sell shares to the public. Under Ryan’s plan, the company would change its corporate structure so that it could raise money by selling stock. Detractors of the plan, such as the insurance director for the Consumer Federation of America, argued that it would enrich management via stock options, while causing policyholders to lose out in the form of lower dividends. In 1999, in preparation for becoming a stock-owned firm, Prudential undertook another reorganization, dividing its businesses into international, institutional, and retail units. The firm’s life, property/casualty, mutual fund, and investment products fell within the retail unit, while group life, 401k and other employee benefit products became part of the institutional unit.

To focus on insurance and financial products, Prudential divested some of its business, including healthcare operations, which it proposed to sell to Aetna for $1 billion. In late 1998, it had announced its intention to pull out of unprofitable Medicare markets, dropping coverage for about 20 percent of its seniors in the SeniorCare program by refusing to renew Medicare-risk contracts in northern and southern California; Maryland; Washington, D.C.; New York; New Jersey; and parts of Florida. Also in 1999, Prudential began rapid global expansion; early that year, it opened a mutual fund company with Mitsui Trust & Banking Co. in Japan, acquired a license to open an office in Poland, and launched new insurance companies in Argentina and the Philippines.

Prudential ranked as the largest life insurer in terms of assets in the United States in 1998. It placed second in net premiums written that year and occupied sixth place in annuity sales during the preceding three years. About 55 percent of the company’s earnings came from the sale of insurance, which grew by 21 percent in 1998, while 45 percent came from its investment and securities businesses. As it approached the 21st century, Prudential faced competition not only from a host of domestic giants, including Citigroup, MetLife, and Merrill Lynch, but from the overseas financial service titans as well.

Principal Subsidiaries

Gifford Fong Associates, Inc.; Merrill Lynch Mortgage Corporation; PIC Realty Canada, Ltd,; PRUCO, Inc.; PRICOA International Bank, S.A. (Luxembourg): The Prudential Life Insurance Company, Ltd. (Japan); AMODA, Sdn. Bhd. (Malaysia; 40%); HSG Health Systems Group Limited (Canada); Jennison Associates Capital Corp.; PRICOA Vita S.p.A. (Italy); PRUCO, Inc.; PRUCO Life Insurance Company; Premisys Real Estates Services, Inc.; PRUCO Life Insurance Company of Illinois; Prudential Fund Management Canada Ltd.; Prudential of America General Insurance Company (Canada); Prudential Overseas Funding Corporation N.V. (Netherlands Antilles); U.S. High Yield Management Company; Prudential Realty Securities II, Inc.; Prudential Special Equity Fund (Luxembourg; 47%); PruServicos Participacoes, S.A. (Brazil); Tesseract Corporation; The Prudential Insurance Company of Korea, Ltd.; The Prudential Insurance Company of New Jersey; The Prudential Investment Corporation; The Prudential Life Insurance Company of Arizona; The Prudential Real Estate Affiliates, Inc.; Prudential Mutual Fund Management, Inc.

The Prudential Insurance Company of America

views updated May 21 2018

The Prudential Insurance Company of America

751 Broad St.
Newark, New Jersey 07102-2992
USA
Telephone: (800) 778-2255
Web site: www.prudential.com

BE YOUR OWN ROCK CAMPAIGN

OVERVIEW

When Elizabeth Krupnick arrived at Prudential Insurance Company of America in June 1994 to take over as chief communications officer, she inherited advertising that she called "mediocre at best." She also inherited one of the most identifiable icons in advertising: the rock. Her mission, as she conceived it, was to modernize Prudential's advertising without abandoning the equity it had invested in the rock. "Only an idiot would give up one of the world's most powerful icons," she said. She intended to distinguish Prudential from typical insurance advertising, which she thought tended to be "staid, corny, and jingoistic."

In 1995 Prudential chose an ad agency whose reputation was the antithesis of typical insurance advertising. Fallon McElligott of Minneapolis had established a name for itself on the success of its calculated risk taking. Insurance companies generally wanted to reduce risk to a minimum, but Krupnick wanted to push the envelope with advertising that was riveting and attention getting. With its renowned creativity, Fallon McElligott was perhaps the most appropriate choice to fulfill this goal. Bill Westbrook, Fallon's creative director and president, fulfilled Krupnick's mission of updating Prudential's image without losing its heritage by transforming the tired tag line, "Get a piece of the rock," into "Live well; make a plan; be your own rock." Krupnick called the transformation a piece of genius.

In another bold move, Westbrook and his associates sought out real Prudential clients who illustrated the new tag line instead of using actors in the commercials. After a lengthy nationwide search, they ended up with a handful of mavericks over 50 years old who had lived according to the principles of the new campaign. The finished spots, which began running during the 1996 Super Bowl, were six commercials featuring, among others, a former prima ballerina with the Israeli Ballet, a retired jazz musician from Connecticut, a former senator from South Carolina, and a holistic doctor from Colorado who mused in the commercial, "Somehow, on some deeper level, we're responsible for what happens to us."

The campaign, however, suffered a premature demise when Prudential hired Roger Lawson as executive vice president of marketing. As a result of Lawson's decision to create an in-house agency to handle advertising, Krupnick resigned her post, and Fallon resigned its account. Both Krupnick and Fallon regretted the lost opportunity to witness the "Be Your Own Rock" campaign run its course, but observers respected their decisions to maintain their professional integrity and creative independence.

HISTORICAL CONTEXT

Prudential had devised its traditional tag line "Get a piece of the rock" to be an assurance of stability and security for its customers. Prudential's vice president of corporate advertising Mary Lou Sack explained the history behind the tag line switch: "Our stance was always: lean on us, rely on us. We're still there for people, but people are really wanting to take more control for themselves of their finances, their life choices, of everything." In the 1990s a pervasive distrust of large institutions developed, especially the insurance industry. In the mid-1990s the insurance industry was the target of major lawsuits by several companies charging market misconduct, which affected not only their bottom lines but their entire corporate culture, including their advertising.

At Prudential the scandal had its origins in three distinct arenas. At the center was the Direct Investment Group of Prudential Bache Securities, which had been selling billions of dollars worth of dubious investments. More peripheral was a churning scandal, whereby Prudential agents convinced policyholders to refinance smaller policies into larger policies for higher dividends without informing them of the inherent glass ceiling. Finally, whistle blowers within Prudential filed suits charging that they were disciplined and even fired when they tried to point out Prudential's wrongdoings—such as churning—to their supervisors. In October 1994 Prudential Securities avoided criminal indictment by admitting fraud. Lawyers representing approximately 10.7 million policyholders claimed more than $1 billion in damages and in the end negotiated an open-ended settlement wherein Prudential agreed to pay the policyholders more than $410 million. The three largest life and health insurers—Prudential, Metropolitan Life Insurance Company, and New York Life Insurance Company, or the "Big Three," as they were called—paid a combined $575 million in settlements. Lost business due to flagging consumer confidence cost these companies even more money than the price of the settlements; they fell short of their projected sales of $198.57 billion by approximately $72.46 billion in 1995.

Prior to this scandal, insurance companies could safely assume that people would seek their services as a matter of course, and thus they could afford mediocre advertising. Traditionally, in fact, insurance advertising used two strategies that relied on negation instead of affirmation: it either patronized consumers or made them feel guilty. After the scandal, insurers scrambled to recover from the impact of the suits, both internally by restructuring their businesses and externally by redefining public perception through more aggressive and memorable marketing. At Prudential Krupnick decided to redirect consumers' distrust by focusing on how the company could help them achieve their own financial goals.

TARGET MARKET

Prudential's spot entitled "The Grandfather" depicted the 78-year-old former South Carolina senator looking out of place on the beach in a business suit while his grandchildren buried him in sand up to his neck. The joyousness of the kids' actions contrasted with the somberness of the mock act of burial. The soundtrack heightened this sense of contrast, as the senator's serious contemplations on his financial philosophy were accompanied by a lighthearted reggae beat, trumpeter Baba Brooks' 1965 recording of "Teenage Ska." These contrasts helped bridge the gap between the message—securing a retirement, which one associates with old age, and the target market, thirty- to fifty-year olds still young enough to plan for their future. Fallon McElligott's senior producer Bruce Wellington defined the challenge of the "Be Your Own Rock" campaign: to get "thirtysomethings to think that planning for their future can be cool." Fallon capitalized on the mood of ska music—a precursor to reggae with a much faster beat—by saddling its hip, upbeat sounds onto what otherwise would have been a very morbid theme. This music would have fallen on deaf ears if it had been targeted at an older audience, but most 30- and 40-somethings appreciated the ska style, even if they didn't recognize the song itself.

Krupnick explained the efficacy of this strategy of portraying happily fulfilled and successful older people as a means of appealing to those younger in life. "The surprising thing was that these ads tested exceptionally well among young people, better than they did among old people. They looked at these older people as rocks, as role models. They are people who have survived into retirement and are living fun, joyful lives." With life expectancy rising, insurance consumers in their middle years worried less about dying too soon and more about outliving their own assets and Social Security. Scare tactics thus seemed less effective to Westbrook than a more positive approach to financial planning. "Let's make it a joyful campaign," Westbrook suggested.

While fear of death spoke primarily to those actively contemplating their advancing years, the idea of enjoying life spoke to a much broader audience. Krupnick defined Prudential's target market much more broadly than Wellington's "thirtysomethings." Since Prudential maintained over 50 million clients—which amounted to one in five Americans—Krupnick half joked that Prudential targeted "anyone with a pulse." This comment seemed less of a jest taking into account that the commercials were not life insurance ads but rather brand advertising meant to raise the visibility of Prudential as a whole, with all of its services that covered financial concerns "from the cradle to the grave."

COMPETITION

The other two members of the so-called Big Three—Met Life and New York Life-were Prudential's main competition. Between 1987 and 1990 all three posted significant increases in sales: New York Life peaked in 1987 with a 59.9 percent increase in sales, while both Met Life and Prudential peaked in 1989 with sales increases of 60.92 percent and 41.84 percent, respectively. The market misconduct scandal, which first surfaced in August 1993 when a group of Florida nurses charged that Met Life agents sold them life insurance in the guise of retirement plans, hit all of the Big Three in 1994. That year Met Life's sales plummeted 38.33 percent compared with the previous year, while New York Life's sales fell 31.49 percent and Prudential's dropped 11.56 percent. These decreases continued in 1995 for Met Life and Prudential (which fell another 22.58 percent); New York Life, which did not admit any wrongdoing as Prudential and Met Life did, recouped its lost ground with a 36.82 percent gain in 1995.

Insurance companies reacted to the scandal by setting up new departments devoted to complying with stricter regulations. At the same time, their marketing strategies reflected a transformed approach in response to a transformed marketplace. Advertising campaigns exited the realm of the abstract and firmly grounded themselves in the pragmatic. Met Life's new tag line promised to help in "making sense of it all," while John Hancock Life Insurance Company grounded its approach in "real life" with "real answers." While the scandal created hardship for both the insurers and the insured, one positive outcome was the reevaluation and revitalization of an industry where changes were long overdue, especially in terms of marketing.

MARKETING STRATEGY

Krupnick decided to take a considered approach to revising Prudential's faltering image after the scandal. Internally she implemented a sweeping campaign to simplify the language and look of the company, from reducing the use of jargon to clarifying the names and functions of subsidiary arms of the company to consistent use of an updated rock logo on company literature. This simplification and updating carried over into the advertising. Before brainstorming for new marketing ideas, Prudential and Fallon McElligott conducted extensive market research to assess both the damage done by the scandal and the attitude toward insurance companies. Surprisingly the research suggested that the scandal had done far less damage to Prudential's name than suspected; however, the scandal did solidify consumer's attitudes, which had been shifting away from reliance on external support such as insurance policies and toward self-reliance. Consumers no longer wanted to lean on institutions that they felt they could not fully trust, but they did realize that they could not be fully self-sufficient—they would still require the services of institutions such as the insurance industry, but on their own terms, not the industry's.

Westbrook captured the spirit of the self-reliance trend with the transformation of the tag line into "Be your own rock." This move alone could not reestablish consumer trust; all aspects of the campaign would have to reflect a commitment to integrity. Hence, the decision to cast actual customers instead of actors. "Insurance agencies in the past have used actors and passed them off as real people, but you know they're actors," Bill Westbrook explained. "And historically when using real people, concepts in this category have been intimidating and scary." Westbrook tried a different approach, taking a chance on finding older people who illustrated his tag line. Several casting directors interviewed over 200 candidates nationwide, narrowing the field down to 12 before making the final decision on the six youthful older people to be profiled in the commercials.

Fallon enlisted the services of director Jeffery Plansker of bicoastal/international Propaganda Films, who supported the use of nonactors to stress Prudential's integrity. Using nonactors represented more risk, but that risk paid off. Westbrook explained, "We wanted a chance for magic and were willing to take the risk in order to create some chill bumps, and something we'd never seen before." Plansker echoed Westbrook, adding that their strategy allowed for "unexpected surprises." This unpredictability enhanced the sense of candor in the spots, which supported Prudential's goal of creating trust through truth telling.

DIRTY SCOTCH

Fallon McElligott's president and creative director Bill Westbrook personally interviewed the people who were profiled in the six "Be Your Own Rock" commercials. Since the interviews involved a lot of reflection and retrospection, emotions ran high and stories frequently ended in tears. Having developed a deep level of intimacy with his subjects, Westbrook cried along with them as they recounted moments with pride or regret. One man described his main vice—"dirty scotch," a combination of milk and scotch whiskey. When this conversation got too emotional, the man suggested that he and Westbrook take time out for a dirty scotch.

OUTCOME

The "Be your own rock" campaign did not live long enough to produce quantifiable results. Krupnick was prepared to follow multiple indicators to track the success or failure of the ads, but she didn't have the opportunity to gather sufficient data. In the absence of quantitative research results, Krupnick reported "fabulous" qualitative and anecdotal evidence; Prudential executives and agents alike reportedly loved the campaign. In 1997 two spots from the campaign were chosen as television finalists by the One Show. A group of advertising and marketing executives chosen by Newsday to evaluate ads broadcast during the 1996 Super Bowl were divided over the Prudential spots—some found them "refreshing," while others found them "confusing." When asked what work he was most proud of, Fallon McElligott cofounder Pat Fallon replied, "The work we did for Prudential. When you think of how difficult that was to sell through the process and how strategically brilliant it was and how well it was executed, that's awesome." Walking away from the Prudential account in 1996 was a devastating experience for Fallon, but the assertion of creative integrity may have compensated for the loss in revenues in the long run. Largely on the strength of the "Be your own rock" campaign, Fallon McElligott was named agency of the year in 1996 by Adweek and Shoot, two of the major advertising trade magazines.