Owning Fast Food Stock Not Such A Bad Thing

A few weeks ago, a news story broke about health and life insurance companies owning stock in fast food companies.  The story was quickly picked up by bloggers and spread around the internet as an example of the evil practices of insurance companies.  From the beginning, I saw it differently.  Any publically owned company (as most health and life insurance companies are) has a responsibility to its shareholders to do what is in the best financial interest of the company.  In the case of life and health insurance companies, premiums are typically invested before they are used to pay claims, and it makes sense that they should be invested in the stocks that will make the most money.

The Notwithstanding Blog recently published an excellent article detailing the reasons why the tiny percentage of fast food stocks owned by major health and life insurance carriers is insignificant when compared with their overall portfolios, and also not detrimental to their policyholders.  In fact, if stock market profits are used to help keep premiums lower than they would otherwise be, policyholders are financially better off than they would be if the insurance companies were invested in a less profitable stock.

Would we be better off without fast food restaurants, or with far fewer of them?  Probably.  Would we be healthier and our health and life insurance premiums be lower?  Maybe, although it’s reasonable to expect that people might find other sources for junk food.  We pay insurance companies to protect our assets and our financial futures (and those of our loved ones) in the event of an illness, injury, or death.  Their chief responsibility to us as policyholders is to remain financially solvent and profitable in order to be able to pay claims as they arise.  Investing in profitable stocks is a good way to go about that, and the fact that some of those stocks are in fast food companies is irrelevant.

In addition, I’m curious as to how many of the people who are outraged by this issue own mutual funds or index funds that hold some stock in fast food companies.  McDonalds is part of the Dow and the S&P 500, so it’s likely included in a lot of basic funds.

Comments

  1. As life insurance companies and banks are still ‘too big to fail’, there should still be a restriction on the types of investments that can be made to ensure they aren’t gambling too much. Whether a stock is fast food or alcohol shouldn’t matter. Just so long as the stocks and bonds have a minimum rating… and no derivatives.

  2. I do not think we should have any right to interfere in the running of publicly owner companies and this should be entirely within the hands of the shareholders. At the same time however I also believe that the public should not bail such companies out when they get into trouble. If they cannot stand on their own two feet when times are tough then they should be allowed to fail.

  3. I agree that these companies should be left to manage their own financial affairs (and not be bailed out if they fail). Maybe someone with a cynical school of thought would also conclude that these fast food chains are actually good for society. They are keeping the average age of death in our society lower than normal and hence we end up paying less for welfare as people are getting older. As harsh as this sounds it will become more important in the coming years a the baby boomers all retire.

  4. Fred Homes says:

    I agree with David on his point that we do not have the right to interfere with the companies’ way of running their businesses. We must not focus on the negativity of things, instead just contribute our share of positivity. I think that these business owners are smart enough to hide conspiracies, if ever they are doing one. So I don’t think what they are doing causes any harm at all.

  5. “Would we be better off without fast food restaurants, or with far fewer of them?” Maybe, but there are plenty of other ways to eat unhealthy. In Germany we have already enough of them but I think in the U.S. it is even worse.

  6. Most life insurance companies, I thought, were not allowed to own stocks??

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