State regulators try to calm AIG policyholders, others

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By staff and wire reports

The U.S. government may have seized control of American International Group two weeks ago, but state insurance regulators and guaranty associations, including Nebraska’s insurance commissioner,  are still fielding calls from panicked holders of policies from the insurance giant.

Nebraska Insurance Commissioner Ann Frohman said her department is getting a dozen or more calls a day, not just from anxious AIG policyholders, but also from others generally uneasy about the state of financial markets. 

“Consumers are concerned about the viability of their policies,” said Thomas Hampton, commissioner for the District of Columbia’s Department of Insurance, Securities and Banking. “We’ve been trying to be on the forefront about providing information to consumers. There’s a lot of misinformation out there.”

The most common questions consumers are asking are these: Should they cancel their AIG life insurance policies and switch to another provider? Should they get out of their annuities?

The answer: Stay put, regulators say. If you cancel your insurance policy, you might not even be able to get a policy elsewhere, depending on your health. If you pull out money from your annuity, you will probably incur a steep withdrawal fee.

“The principal thing they should know is not to panic,” said John Boritas, executive director of the Maryland Life and Health Insurance Guaranty Corp. “It will not be to their benefit to act rashly.”

“I agree with my fellow insurance directors,” Frohman said in an email to the Journal Star.  “I would caution anyone from making insurance decisions based upon the troubled activities associated with the AIG holding company.  It is not an insurance company.  It is important to note that a distinction between the activities engaged in by the holding company  -- where the liquidity problems arose -- do not affect the claims-paying ability of the insurance company subsidiaries.  

“The insurance companies are regulated by state insurance departments.  They are solvent and fortunately, if one can take solace in anything right now, folks should be relieved of the fact that the insurers were not permitted to engage in the same investing sophistry of the holding company,” Frohman wrote. 

The government bailout of AIG has confounded many consumers in part because the insurance business is so difficult to understand, the experts said.

State regulators and guaranty associations, which protect insurance policies and annuities if a company is declared insolvent, have been working furiously to help consumers understand that AIG is a holding company with many subsidiaries, including the insurance companies that actually service policies.

AIG may be troubled right now, but its insurance subsidiaries are not and they have enough money to cover claims, regulators say.

Even if an insurer is declared insolvent, each state’s guaranty association will step in to ensure your funds are protected.

Robert Bland, chief executive of Insure.com, which rates insurance companies, said in each of the last two weeks, his firm received more than 4,300 requests for financial stability ratings of insurance companies. Typically, he said, he gets about 3,000 per week.

“For the consumer, this is very confusing,” he said. “The level of angst is clearly the highest I have ever seen it. There’s no question there has been tremendous damage to the AIG brand, but going beyond the AIG brand I believe there is a new level of angst out there that is going to be with us for a while.”

It hasn’t helped that some agents have been calling customers and telling them they should abandon AIG because of its troubles. AIG spokesman Joseph Norton said the company has reported complaints of unfair sales practices on the part of its competitors, both domestically and overseas, to insurance regulators.

Officials say they are stepping up efforts to prevent unscrupulous insurance agents from swooping in and frightening customers into selling their AIG life insurance policies and annuities, which are popular retirement products. Several state regulators have warned agents that such tactics are illegal. Some, such as those in New York and Kentucky, are investigating complaints from consumers. 

The Washington Post and Journal Star reporter Richard Piersol contributed to this report.