Top 10 Worst Insurance Companies

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Jul 16, 2008 4:46 pm

The section on AIG (#3) is very telling and
provides an accurate parallel to their brokerage/retirement services
division; you can tell I'm not bitter :).

The Full PDF can be found here: (July 2008)

Quoted from PDF:

The world’s biggest insurer, AIG has a long history of

claims-handling abuses for both individuals and business

clients. AIG executives have also come under fire

for opportunistically seeking price increases during

catastrophes. Now the company has been labeled “the

new Enron” because of charges of multi-billion dollar

corporate fraud.

AIG has long had a reputation for claims-handling abuses.

49 Part of the reason for that reputation is AIG’s reliance

on underwriting results. Nearly every other insurance

company relies on the income it makes from investing its

policyholders’ premiums. AIG has always focused on

turning a profit on underwriting—in other words, taking

in more money in premiums than it pays out in claims.

To do that, the company has had to be extremely parsimonious

about the claims it pays. Former AIG claims

supervisors have alleged in litigation that the company

used all manner of tricks to deny or delay claims, including

locking checks in a safe until claimants complained,

delaying payment of attorney fees until they were a year

old, disposing of important correspondence during routine

“pizza parties,” and routinely fighting claimants for

years in court over mundane claims.50

In 1999, after discovering AIG was losing as much as

$210 million on auto-warranty claims, CEO Greenberg

installed a new team that began to systematically reject

thousands of claims, even when its own claims-handling

contractor recommended they be paid. Richard John, Jr., a

vice-president at the contractor, would testified that the

company used any excuse to deny a claim, including ruling

that installing manufacturer-approved tires was a

“modification” that invalidated the warranty.51

After an AIG-insured Safeway burned down in

Richmond, Virginia, the supermarket was confronted with

damage claims from nearby residents who had been

affected by the fire. AIG denied the claims saying that the

damage was caused not by fire but by smoke, which qualified

as a form of air pollution and as such was not covered.

In fact, in a series of high profile cases, AIG or its

subsidiaries fought claims on tenuous bases, building its

reputation as one of the most aggressive claims fighters in

the industry.52

In 2005, AIG was sanctioned by a federal judge in

Indianapolis for attempting to unfairly block discovery in

an environmental case. AIG’s lawyers went so far as to give

instructions not to answer 539 times during one deposition

of an AIG executive.53 In January 2008, AIG agreed to pay

$12.5 million to several states after state insurance commissioners

found that the company had conspired with other

insurance brokers to submit fake bids in order to create an

illusion of a competitive bidding process in commercial

insurance markets. Businesses and local governments

ended up paying artificially inflated insurance rates.54 Even

other insurance companies got the treatment. In 2007, an

AIG reinsurance unit was forced by an arbitrator to pay

more than $440 million to five insurance companies who

alleged the AIG unit tried to rescind their contract when

it was time to pay, and then continued to refuse payment

even after several courts had ruled against rescission.55

AIG is not alone in using strategies such as deny-delaydefend

to enhance its bottom line at their customers’

expense.What sets AIG apart, however, is the way it has so

callously sought to take advantage of its policyholders’


In 1992, on the day Hurricane Andrew landed in

Florida, AIG Executive Vice-President J.W. Greenberg, son

of then-CEO Maurice Greenberg, sent a company-wide

memo saying, “We have opportunities from this and

everyone must probe with brokers and clients. Begin by

calling your underwriters together and explaining the significance

of the hurricane. This is an opportunity to get

price increases now.We must be the first and it begins by

establishing the psychology with our own people. Please

get it moving today.”56

Similarly, the September 11th terrorist attacks were to

most people a terrible tragedy. To Maurice Greenberg, the

“opportunities for his 82-year-old company have never

been greater.”57 In the immediate aftermath of the attacks,

prices for insurance soared by what Greenberg described

as “leaps and bounds.” “It’s a global opportunity,” the CEO

said at the time. “It’s not just in the United States, but

rates are rising throughout the world. So our business

looks quite good going forward.”58 Greenberg also said of

the increased awareness of the need for insurance that the

attacks prompted, “AIG is well positioned—probably as

well as it's ever been in this marketplace.”59

AIG executives are unapologetic about their reputation

for opportunism. “We’ve always been opportunistic.

When we see opportunities, we will never change. At AIG

it’s part of our culture.”60

AIG’s opportunism has also crossed the line into fraud.

According to the Federal Bureau of Investigation (FBI),

insurance fraud totals more than $40 billion and costs the

average family as much as $700 per year. However, while

the insurance industry only talks about fraud committed

by its policyholders, what interests the FBI is the increase

in corporate fraud by the insurance companies themselves,

leading the agency to establish it as one of its top

investigative priorities.61 No company is a better example

of this kind of fraud than AIG.

In 2006, AIG paid $1.6 billion to settle charges of a

variety of financial shenanigans that had commentators

describing AIG as “the new Enron.”62 Two years later, five

insurance executives were found guilty of fraud.63

The fraud accusations were traced back to longtime

CEO Maurice Greenberg, who was ousted from the company

he had led for 38 years.64 Greenberg was identified by

prosecutors as an “unindicted co-conspirator,” and notified

that the Securities and Exchange Commission, which

had already fined the company $126 million, was likely to

pursue civil charges against him for two separate incidences

of fraud.65 AIG was also fined millions of dollars

by state insurance regulators, and faces charges that they

bilked pension funds out of billions of dollars.66

But that was not the end of the AIG fraud saga.

Greenberg, who once described civil justice attorneys as

“terrorists,” launched an epic battle of lawsuits and countersuits

with his former company.67 Suddenly, the $1.6 billion

AIG paid to settle claims of fraud seemed to pale in

comparison to the charges being exchanged between those

who knew better than anyone the true extent of the fraud.

AIG now claims Greenberg “misappropriated” $20 billion,

and Greenberg in turn says AIG concealed $4 billion in


In 2006, AIG was implicated in the manipulation of

local government bond issues. At least $7 billion worth of

“phantom bonds,” which were intended to aid the poor

and supply computers to inner city schools, have instead

only benefited companies such as AIG. In one such “phantom

bonds” case in Florida, an AIG unit conspired with

other financial services firms to extract fees from a $220

million bond issue that was intended to promote affordable

housing for low income families. Unbeknownst to the

local government agency involved, AIG’s deal meant the

less money that actually went to affordable housing, the

more money AIG and its fellow companies would make.

AIG and its co-conspirators eventually took $12 million in

fees. Not a penny went to the affordable housing. The deal

also violated U.S. tax laws, which would eventually force

AIG to settle with the IRS. AIG was involved in similar

deals in Georgia, Oklahoma, and Tennessee.69