Insurance is a very special product. You pay and you pay and you pay premium dollars, often for your entire life. In return you only get a promise. A promise that if you ultimately have a covered claim, and you’re paid up, they must pay that claim. The problem is that they must have that money, for years and years, kept safely and invested legally in order to be able to pay your claim if they so choose. It’s that special relationship of trust that imposes on an insurance company an obligation of truthful financial reporting in their financial statements.
If you, too, consider insurance a very special product, as you read AIG CEO formerly headed up Allstate insurance company you will see how the industry’s conduct following Hurricane Katrina caused that special relationship of trust to become a deep sense of betrayal.
To many on the Gulf Coast, watching AIG chief executive officer Ed Liddy talk about the sanctity of contracts in defending the award of $220 million in bonuses to employees at the embattled insurer was an ironic moment.
If only Liddy held that same view of contractual obligations to policyholders after Hurricane Katrina when he was at the helm of Allstate, Louisiana’s second largest insurer.
“How about that?” quipped Bob Hunter, a New Orleans native who is director of insurance at the Consumer Federation of America and the author of a 2007 study documenting the decline of claims payout ratios at Allstate during Liddy’s tenure. “He’s always disregarded contracts to maximize profits.”
Liddy was appointed by the federal government in September to run AIG when the ailing insurer got its first installment of taxpayer bailout money, which now totals $170 billion.
Before caving to pressure on Wednesday and saying that he would ask those who received more than $100,000 in bonuses to return half of the money, Liddy argued that the money needed to stay where it was because contracts are sacrosanct.
That Liddy was forced to cave in to pressure is eye for an eye– justice to policyholders pressured to settle for less coverage than they purchased. Many had to fight for even that; and, sadly, some still are. Continue reading “that special relationship of trust and a deep sense of betrayal”