Agents Joe and Jo on AIG and E&O

The federal government’s recent bail out of American International Group Inc. (AIG) via a $122 billion-plus loan to keep the company afloat set the insurance industry on edge. AIG’s insurance entities are solvent and solid, according to most credible observers, including the National Association of Insurance Commissioners. However, some agents fear the instability resulting from the parent company’s financial woes could trickle down to its insurance units.

While 62.7 of respondents to Insurance Journal‘s 2008 Agency E&O Survey said AIG’s problems had not raised E&O concerns within their agencies, 23.6 percent reported they did have concerns and 13.7 percent said they were not sure.

Fictional insurance agents Joe and his female counterpart, Josephine (Jo), whose views are based on survey respondents’ comments, expressed concerns about the AIG situation, noting they are bothered by such issues as where to place coverage if the client wants to change, non-admitted insurers, market stability and perception problems.

Jo wrote that she is now wary of placing much new business with AIG or its affiliates unless no other option was available. Whether or not there would be other options for some of their risks was also a concern. “They write more and tougher classes of business than all the rest,” she wrote.

“We write some complex accounts with AIG,” said Joe. “Other companies may not be able or willing to write them for a premium acceptable to our clients.”

Coverage placed in non-admitted subsidiaries of AIG also posed a problem for Joe, due to the fact that those policies would not be covered by state guaranty funds should the non-admitted company fail. He wrote that the “use of the non-admitted AIG companies may expose us to E&O due to State Guarantee fund not covering them.”

“I have some policies with AIG admitted and non-admitted carriers so I have most concern with the non-admitted,” concurred Jo.

Stability of the AIG insurance companies, as well as other insurers, is worrying both Joe and Jo. “We had a very attractive proposal from AIG and declined because of our concern with their stability,” said Joe. “We could have saved 38 percent.”

Josephine said the AIG debacle was “proof that we have no real way of knowing the condition of our carriers.” She lamented that the security of an “A” rated company is not what it used to be, adding that in recent history such companies have gone “down practically overnight.”

“Never has the [government] taken over a carrier,” Joe noted. “We no longer have faith in the rating agencies who missed Reliance, Kemper and AIG, now maybe Hartford.”

Exasperated, Joe complained: “Insureds keep asking me about what is going on and I just do not know nor [will] anybody tell me.”

Jo feels that AIG’s woes will serve to tarnish the reputation insurance agents have with consumers. “Insurance agents and brokers are all painted with the same brush — thieves at any level of the industry drag everyone else down with them!” she exclaimed.

“I have an AIG appointment, but have suspended quoting AIG because of the publicity and public’s lack of understanding of their situation,” added Joe.

Jo worries that “any claim AIG agrees to pay will be held in suspicion by an insured. Are they low-balling to save money while under financial duress? Will insured blame my agency if it’s not paid?”

“AIG is an E&O concern due to the publicity surrounding the situation,” Joe wrote. “We must watch closely what AIG does and monitor its insurance divisions for our clients’ sake and so we can properly answer the questions that have arisen.”

Topics Agencies AIG Professional Liability