It should not come as a surprise when you have banking/finance people running an insurance company. If you recollect, one of his biggest cost savings measures was to get rid of the institutional knowledge and expertise. Improved margins slightly, but not results.
I see these guys and how they operate every day. Sure, they have protocols in place as to how to deal with renewal accounts performing good or badly. Various rate increases depending on how well they have performed. Is this good enough? In some cases yes and other cases no. Typically their rules are driving away the business slightly under-priced while retaining business grossly under-priced. And then there is new business. Little or no rules there allowing the underwriters to grossly under-price the business to meet their premium goals. Business that in three or four years will have the bad effect that older business written three or four years ago is having today. The bad business being pushed out the front door is coming right back in through the back door. And so the cycle continues.
Couldn’t agree more with Dave’s comment. However, this situation isn’t unique to just AIG, it is happening across the board. AIG does have a unique problem in that it is so big that it’s not possible for management to really know what is going on at the ground level. Outside of that, every underwriter is faced with the same reality of die by the sword or die by poison in this market. The sword way is by sticking to their underwriting morals and not writing crap business while watching peers and co-workers in many cases get raises and promotions for having no underwriting discipline. The poison way is join in the fun by writing whatever you want to hit your goal number and hoping you can outrun your losses for a few years until you can find another company to give you a raise and promotion. Competition has reduced rates so severely that the industry will likely not start being profitable again until investment income can over take underwriting losses. Just like the Wells Fargo scandal…when stockholders demand that boards and company execs do better every quarter, year, etc. and they force that pressure down the ranks, the front line employees roll their pants up and wade into the mud to make sure they can keep feeding their families. Speak up and stick to your morals and your fired.
It should not come as a surprise when you have banking/finance people running an insurance company. If you recollect, one of his biggest cost savings measures was to get rid of the institutional knowledge and expertise. Improved margins slightly, but not results.
Once a banker, always a banker.
I see these guys and how they operate every day. Sure, they have protocols in place as to how to deal with renewal accounts performing good or badly. Various rate increases depending on how well they have performed. Is this good enough? In some cases yes and other cases no. Typically their rules are driving away the business slightly under-priced while retaining business grossly under-priced. And then there is new business. Little or no rules there allowing the underwriters to grossly under-price the business to meet their premium goals. Business that in three or four years will have the bad effect that older business written three or four years ago is having today. The bad business being pushed out the front door is coming right back in through the back door. And so the cycle continues.
Dave, I am not surprised at all at how bad they are doing.
Couldn’t agree more with Dave’s comment. However, this situation isn’t unique to just AIG, it is happening across the board. AIG does have a unique problem in that it is so big that it’s not possible for management to really know what is going on at the ground level. Outside of that, every underwriter is faced with the same reality of die by the sword or die by poison in this market. The sword way is by sticking to their underwriting morals and not writing crap business while watching peers and co-workers in many cases get raises and promotions for having no underwriting discipline. The poison way is join in the fun by writing whatever you want to hit your goal number and hoping you can outrun your losses for a few years until you can find another company to give you a raise and promotion. Competition has reduced rates so severely that the industry will likely not start being profitable again until investment income can over take underwriting losses. Just like the Wells Fargo scandal…when stockholders demand that boards and company execs do better every quarter, year, etc. and they force that pressure down the ranks, the front line employees roll their pants up and wade into the mud to make sure they can keep feeding their families. Speak up and stick to your morals and your fired.