Cracking Under Pressure

The Chips Fall: Agents, Customers, Competitors Pick Up the Pieces

Old, New Business Breaking Away

The financial woes of American International Group (AIG), a giant insurer that does considerable business with thousands of producers in a variety of markets and often writes risks other insurers will not touch, has agents and brokers in a bind.

Should they stay or should they go?

Producers are being pressured by clients with concerns about AIG and tempted by overtures from AIG’s competitors.

An “AIG in Crisis” survey by Insurance Journal of 1,000 insurance producers, including 782 who say they have accounts with AIG, found that a fair percentage — 43.8 percent — have had clients ask them to move their account out of AIG.

Slightly more than a quarter (202 producers or 25.8 percent) of AIG agents and brokers said they had in fact already moved or agreed to move accounts from AIG.

Executives with large insurance broker Marsh told Reuters that some clients with AIG policies are asking questions about moving business ahead of renewals.

This movement was reported despite assurances from state regulators and the insurer itself that the insurance subsidiaries of AIG are financially sound.

AIG issued a statement stressing that its insurance companies are well capitalized and meet or exceed local regulatory capital requirements. “The companies continue to operate in the normal course to meet obligations to policyholders,” the company said.

Newly-named AIG CEO Edward M. Liddy also appealed to customers and brokers to stick with the company in a letter:

“Thank you for sticking with us. All 116,000 AIG employees appreciate your confidence in us and are working tirelessly, with a renewed commitment to serving your needs. Be assured that our insurance companies remain strong and well-capitalized. The financial issues of the AIG parent company do not affect our insurance companies’ ability to pay claims and underwrite new policies. Regulations ensure that the assets of our insurance companies are there to back up each policy. You are protected. Your policies are safe.”

According to AIG, the appeals to producers and clients are working and the firm has not seen signs of defections.

“We are not seeing it,” stated Peter Tulupman, public relations manager for AIG, when asked to respond to the survey. “In fact we are renewing business and signing new clients daily. We are aggressively communicating with our clients, brokers and agents daily and we are receiving a tremendous amount of support.”

IJ‘s survey was answered by 782 agents and brokers who said they have business placed with AIG. An additional 218 producers also answered the survey, which asked broader questions related to the AIG financial crisis.

Overall, more than 62.3 percent said that going forward they expect to place less business with AIG insurance subsidiaries as a result of the parent companies’ financial woes.

Almost 80 percent of all 1,000 survey respondents said they expect AIG will lose market share, with 41.5 percent agreeing this is “very likely” to happen and another 37.5 percent terming it “likely” to happen.

Industry insiders contend the account movement is understandable even though state regulators are saying that the AIG insurance subsidiaries are in sound financial condition.

“Since the rating agencies apply the same financial rating to the subsidiaries as they assign to the parent, it really doesn’t matter where the subsidiaries stand financially — they fall with the parent,” said Chris Boggs, associate editor of MyNewMarkets.com. “Also, and not to deride any person or their opinion, some of this has to do with a misunderstanding of the complexity and size of AIG. To some agents, like to some clients, AIG is AIG, and if AIG is in trouble, that’s all they hear. Anything said in defiance of the agent’s or client’s opinion is just spin in the view of some.”

Not all producers are letting the AIG crisis change their practices. About 35 percent said the crisis is not likely to have any effect on their placement decisions. For many, it’s a matter of juggling loyalty to the company with loyalty to customers (see “Fractured Loyalty” below).

Tough Situation

According to Boggs, if a client requests to be moved from AIG, the producer can be placed in a tough situation, not wanting to move the customer unnecessarily but also not wanting to risk a lawsuit.

Boggs worries that everything AIG does for the next few months until this furor dies down will be looked at under the microscope.

“Every move is a PR move. That’s the part that really scares me because, if they deny a questionable claim, the insured is going to blame the agent for keeping them with a troubled carrier. Even if it’s a legitimate denial, there are going to be crossed eyes and pointed fingers. On the flip side, AIG could go the other route and pay claims just to avoid bad publicity and take the insurance side into financial trouble,” Boggs said.

But before any decision is made on moving an account, the producer does have an obligation to spell out the facts to the client.

“Agents must explain, to the best of their ability and knowledge what the facts of the situation are, in this case that the insurance subsidiaries are very strong and in no financial problem and that it’s the non-insurance part of AIG that has caused the problem,” said Boggs.

The final decision is still the client’s.

IJ‘s e-mailed survey was conducted on Sept. 18 and closed at 11 a.m. EDT on Sept. 22, just days after the government loaned AIG $85 billion and seized 80 percent of the company.

Topics Carriers Agencies AIG