Despite assurance from state regulators that the insurance subsidiaries of American International Group (AIG) are financially sound, insurance producers are moving accounts from AIG.
A survey by Insurance Journal of 1,000 insurance producers including 782 who say they have accounts with AIG found that 343 producers have had clients ask them to move their account out of AIG. That’s 43.8 percent of producers with AIG accounts.
Slightly more than a quarter (202 producers or 25.8 percent) of AIG agents and brokers said they have in fact already moved or agreed to move accounts from AIG.
The 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.
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.
Not all producers are letting the AIG crisis change their practices. About 35 percent said the financial crisis is not likely to have any effect on their placement decisions.
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, associated 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.”
The pullback reflects agents’ desires to protect their clients as well as themselves.
“It’s not really a surprise, especially if an agent has been through a few company meltdowns such Reliance, Royal and other such carriers,” said MyNewMarket’s Boggs. “When the boat springs a leak, it sinks a lot faster than you think or hope. Agents don’t want to be accused of not being proactive. Better safe than sorry.”
The emailed survey was conducted on Thursday, Sept. 18 and closed at 11 a.m. EDT on Monday Sept. 22, just days after the government loaned AIG $85 billion, seized 80 percent control of the company and installed a new chief executive officer.
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.
Producers’ comments in the Insurance Journal survey indicate that the scrambling for the AIG accounts has already begun.
“We have seen and heard from marketing of other insurers for our AIG business,” an agent wrote.
“They are already campaigning for the business,” another producer said of the carriers he represents.
“We have received emails and calls from Travelers, Zurich, C N A and Fireman’s Fund,” reported another.
One agent said one of his agency’s personal auto carriers is already offering agencies a bonus for AIG accounts.
If AIG loses business, which of its competitors will gain?
AIG is so big and covers so many markets, the winners could be spread out among major international carriers, large commercial writers, surplus and specialty lines carriers, even regional carriers, according to producers.
Zurich, Travelers, Chubb, The Hartford and Liberty Mutual are among the carriers respondents to the Insurance Journal survey cited most often as potential winners, along with Lloyd’s and various surplus lines and specialty companies. The large surplus lines carrier, Lexingon Insurance, is among AIG’s companies.
“I think anybody with the ability to compete with AIG will now have an advantage over them,” one producer wrote.
“The big names like Travelers or Hartford or even Lloyd’s on the odd accounts will be able to use their financial strength to gain an advantage,” said one survey respondent.
“I think agents and insureds will look for smaller, regional carriers, thinking this is safer,” added another.
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.
“If the producer is a broker, working only for the client with no agency agreement with the carrier, they work only for the client and act in the client’s best interest,” he said. ” If the producer is an agent for AIG, they are contractually required to act in the best interest of AIG since agents work for the carriers with which they are contracted. However, if the client comes to an agent for AIG, and requests that coverage be moved, the agent has little choice but to move coverage or risk losing the client.”
But before any decision is made, the producer does have an obligation to spell out the facts of the situation 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. Also, that there’s a new CEO; the Fed has propped up the company; and all the rest that has happened,” said Boggs
The final decision is still the client’s.
“After the explanation of the facts, if the client still wants to move, the agent needs to move the coverage or risk an errors and omissions lawsuit if something goes bad,” Boggs said.
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