AIG to cover workers’ comp errors

As part of its record $1.6 billion overall settlement with state and federal officials for fraud and improper accounting, American International Group will pay states $343.5 million for underpayment of workers’ compensation premiums taxes and residual market assessments.

The combined tax and assessment amounts going to states vary. They include $57 million to Florida, $34 million to Massachusetts and $100 million to Rhode Island.

AIG was found to have improperly booked workers’ compensation premiums as general liability premiums from at least 1985 through 1996. One effect was to reduce AIG’s taxes and residual market payments for those years.

A report by INS Regulatory Insurance Services Inc., consultants retained by the New York State Insurance Department, cited two reasons for the improper bookings. AIG issued contracts for three lines of business (commercial auto, general liability and workers’ compensation). Due to its estimation process for the workers’ compensation portion, premium was improperly allocated among the three lines of business or not booked to the proper line. Subsequent premium adjustments were not booked to the proper lines either, the report found.

In addition, the report says that AIG’s premium adjustments were “severely backlogged and often not done at all. When finally done, care was not taken to ensure proper booking to the correct line of business.”

The estimated total workers’ compensation premium tax impact was $15.3 million or $42.4 million with interest. The residual assessment impact was $101.5 million or $301.2 million with interest.

AIG was also accused of improperly booking direct workers’ compensation premiums as assumed reinsurance premiums for the purpose of avoiding premium taxes and residual market assessments. However, the consultants were unable to conclude whether this happened.

Topics Workers' Compensation AIG