Auto Insurer AIG Deserve Bailout?
One hundred and eighty BILLION dollars.
That amount of money is so large that many of us can’t even comprehend it. It is an amount of money that dwarfs what any of us can expect to make in our lifetimes, or our children’s lifetimes, or our grandchildren’s lifetimes, and so on and so on.
This is the amount of money that was given by the U.S. government to American International Group, one of the largest insurance brokers in the world. This taxpayer bailout was given to AIG in order to keep it solvent.
If you are wondering why we have to foot the bill of a dying insurance company, the short answer is that AIG doesn’t just do insurance. They do investment banking, retirement portfolios, and, most tellingly, financial securities.
What this means is that, like many other enormous corporations, AIG had an incredible amount of the wealth of their investors in securities that were backed by packaged sub-prime mortgages. These securities were a great way to make steady profits for investors and shareholders in the short term, provided that property values kept rising and rising. But eventually the housing bubble popped, and the result is that these mortgage based securities were not even worth the paper that they were printed on.
These investors, by the way, are not corporate bigwigs with private jets and mansions. They are your neighbors who have their retirement plans and 401k’s wrapped up in this company and its subsidiaries. They are the businesses that employ your friends and family members. They are, in short, US.
While the resulting economic collapse has been profoundly destructive to the overall wealth of Americans everywhere, the incident at AIG has at least provided everyone with proof of how insurance companies operate financially, and what their real motives are when they engage in bad faith tactics.
The common assumption among many Americans is that insurance companies take your monthly premium and place it in a vault for safe keeping, so they will have it on hand in the event that you get into a car accident, or your house burns down, or you get sick.
That isn’t how it works at all.
Insurance companies are only required to keep a certain percentage of their premium income on hand to cover the needs of their policyholders. This amount of money is called “the reserve,” and the percentage levels of the reserve are miniscule in proportion to the amount of money that they take in. The rest of the money goes to operating costs, advertising, salaries, incidentals, and, of course, investment.
Which brings us back to things like subprime mortgage based securities and 180 billion dollar bailouts.
Normally, when the investment margins of insurance companies take a nose dive, the general practice is for them to raise the premium rates to make up the difference. A rise in insurance rates normally has very little to do with an increase in accident rates or money paid out in settlements.
For instance, in the early part of this decade, insurance companies who underwrote medical malpractice policies increased the rates on their policyholders, so much so to the point that many doctors began to despair of being able to afford to keep practicing medicine. The insurance industry as a whole manufactured a Public Relations offensive that was called “The Medical Malpractice Crisis,” where the culprits were “frivolous lawsuits” and “greedy trial lawyers”, despite the fact that there were no meaningful increases in malpractice lawsuits, settlements, or judgments against doctors.
But this time around, the scope of the financial loss is too large and too public for the usual scapegoats to work. A token swipe at “greedy trial lawyers” is not going to be sufficient here.
The money that AIG has is on loan from the U.S. Government, and the main thrust of that money is going to be dedicated toward fixing the damage to the retirement portfolios of Americans. That means the pressure is going to be on the other branches of AIG to become more profitable so AIG can right its financial ship that much faster.
What we predict is that if you have a claim filed with an AIG subsidiary, you can expect the settlements offers to be lower, more treatments to be deemed “voluntary” or “unnecessary,” and denials to come more frequently. And you can expect other insurance companies to follow suit. After all, AIG isn’t the only one who had a bundle in the stock market.
This is why it is more important than ever to have your accident or injury claim looked at by experienced attorneys. Insurers will be pulling out all the stops to recoup their losses, and injury victims everywhere will need someone on their side to help them receive fair treatment.
The law firm of Greenberg and Bederman has been serving the injured of the D.C. Metropolitan area for more than twenty years, and what has made our practice successful is our ability to get our injured clients past the standard games and denials of insurance companies. If you or a loved one in Maryland, the District, Northern Virginia or Baltimore has been injured in an accident, contact Greenberg and Bederman for a free legal consultation today.
To learn more about auto accident claims, please read our auto accident page or watch our video by Jason Fernandez. To learn more about personal injury claims, please read our personal injury page, or watch our video by Andrew Bederman..
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