AIG Lost $500 Million in Auto Warranties
Recent investigations of the insurance industry have revealed significant losses for American International Group (AIG) caused by setting warranty prices too low.
Recent investigations of the insurance industry have revealed significant losses for American International Group (AIG) caused by setting warranty prices too low.
According to company documents contained in court reports and interviews with former executives, AIG overspent while developing the business through a nationwide network of sales agents and claims adjusters, some of whom the company believed cheated it, reported USA Today.
The auto warranty program actually cost the company about seven times the payout it disclosed related to the 1995 earthquake in Kobe, Japan, the paper reported. This total is close to AIG´s $533 million loss from the 9/11 terror attacks.
AIG attempted to cut its losses by handling claims in-house and denying or reducing payments to customers, according to internal records, consumer complaints and lawsuits. In addition, records show the company did not have reinsurance to cover its exposure.
In October, New York Attorney General Eliot Spitzer filed a civil lawsuit accusing insurance brokerage Marsh & McLennan of soliciting kickbacks from AIG, led by Hank Greenberg and Ace, led by Greenberg´s son, Evan Greenberg. Marsh & McLennan was led by Evan´s brother, Jeff Greenberg, until his Oct. 25 resignation.
According to USA Today´s report, the Justice Department and Securities and Exchange Commission are now investigating AIG for marketing unorthodox accounting products that allegedly shielded clients´ debts and undesirable assets from regulators and shareholders.
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