As I noted earlier, word in the market is AIG is aggressively pursuing P&C business, working very hard to hold onto current customers and aggressively cutting prices to get new ones. This is at least in part the reason premiums in the fourth quarter dropped by 22%.
AIG is the largest writer of workers’ comp, the primary provider of all P&C insurance to the Fortune 500 (97% have at least part of their insurance program with AIG), a major player in transportation where it is the prime insurer for many airlines, shipping, and trucking companies, probably the largest writer of construction wrap-up policies, and a major source of capacity in the excess and catastrophic market.
While I don’t know what the big insurer is doing in all these markets, I do know that they are aggressively slashing prices on both new prospects and renewals in the commercial markets in an effort to hold on to customers and add as many new ones as possible. Anecdotally, this is happening in Florida, Connecticut, Texas and New York; it may well be occurring elsewhere.
This runs counter to a piece in today’s WorkCompCentral. Regulators have been watching AIG for signs of potentially severe price cutting, and according to WCC:
“Orice M. Williams, the GAO’s director of Financial Markets and Community Investment, told the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises on Wednesday that her agency is in the middle of reviewing the AIG financial bailout. The analysis includes investigating how receiving money from the Federal Reserve Bank of New York and the U.S. Treasury Department has affected competitiveness in the commercial property/casualty market.
“According to some of AIG’s competitors, federal assistance to AIG has allowed AIG’s commercial property/casualty insurance companies to offer coverage at prices that are inadequate for the risk involved,” Williams told the panel.
But she said GAO so far has failed to confirm those allegations.
“State insurance regulators, insurance brokers and insurance buyers said that while AIG may be pricing somewhat more aggressively than in the past in order to retain business in light of damage to their parent company’s regulation, they did not see indications that this pricing was inadequate or out of line with previous AIG pricing practices,” she said.”
Brokers I’ve spoken with indicate the price-cutting is taking the form of AIG underwriters aggressively quoting most of the business submitted by brokers. In the past, AIG could be highly selective, using its acknowledged expertise in underwriting to carefully pick the risks it deemed worthwhile, and ignoring the rest.
No more.
Pressed by an urgent need to generate capital, several contacts indicate AIG seems to have all but abandoned underwriting discipline (at least in the commercial markets in the states noted above).
Meanwhile, many of our elected officials are screaming about the payment of bonuses that amount to one-tenth of one percent of all taxpayer investment in AIG. This is political grandstanding at its worst – and most counter-productive. Instead of fighting over who said what when to whom how, they should be watching more closely the business practices of the largest insurer ever to be publicly owned. Instead of calling for the offing of their heads, our politicians should be ensuring AIG continues to operate intelligently – and for the benefit of its shareholders, who are mostly we taxpayers. It is encouraging that Williams and her colleagues are watching this closely, but my sense is the price-cutting is more prevalent than her findings indicate.
What does this mean for you?
AIG may well generate more cash over the short term. And in the worst case, increase the chance that they will fail over the long term; in the best case, reduce the company’s value to future buyers thereby slashing the return we’ll get on our investment.
Mar
20
