Mr. Kandarian said the long-term nature of a life insurance company's liabilities "protects against bank-like runs and the need to sell assets quickly." Regarding products with a savings component, he said "there are strong disincentives to surrender and cash out." He mentioned surrender charges, tax penalties, and the fact that new policies need to be underwritten. He also said insurance regulators "have the ability to halt surrenders in the event of financial distress, and have typically done so."
Everything Mr. Kandarian said is accurate, but there are at least two important points he did not mention. First, policy loans are important, as evidenced by the potentially fatal runs experienced by several large companies because of low fixed policy loan interest rates when market interest rates spiked in 1981. New policies issued today usually have variable loan interest rates, but many have fixed maximum rates and many old policies with low fixed rates are still in force.
Second, when insurance regulators step in, the reverberations can be widely felt. Regulators did indeed intervene to stop runs at companies such as Executive Life and Mutual Benefit Life, but many policyholders of those companies suffered significant losses.