AIG was once an ultra-reputable insurance company. But its fantastic losses have now more or less ruined the company and the brand. Already there are rumours that AIG’s insurance customers are fleeing. And now CEI’s insurance expert says AIG may be the next Enron.
From CEI (no link yet):
The collapse of state-regulated insurance subsidiaries could result in a significant tax hike for nearly all Americans, warns an insurance policy expert with the Competitive Enterprise Institute.
Eli Lehrer, who first warned about potential problems with AIG’s US-based insurance subsidiaries in September of 2008, warns that a second scandal appears to be brewing with regard to the insurance giant.
“AIG subsidiaries are likely in worse shape than appeared at first blush,” Lehrer explained. So far, AIG has sold only one of its 72 subsidiaries that sell insurance in the U.S.
Past collapses have not been a big deal because they have been small; but an AIG collapse would not be small. “In the past, when insurers have collapsed, it has meant that people in a few states have seen surcharges of a few dollars on their insurance policies—annoying, but not a big deal,” said Lehrer. “A bailout of AIG’s insurance businesses could mean enormous new taxes for just about everyone. Some people might see a very unwelcome surprise in their insurance bill.”
Lehrer compared the situation to another famous corporate collapse. “On the surface, this looks a lot like Enron,” said Lehrer. “A lot of the underlying business may have had serious problems.”
The consequences for the collapse of any one of AIG’s sizeable insurance subsidiaries would result in significant taxes—called “assessments” —on homeowners, automobile, life insurance, and other policies. These assessments would be decided at the state level.
In almost all cases, legislatures do not need to approve assessments before they are levied to bail out insurance companies. All insurers participate in “guarantee associations,” and in most states, these associations are nominally private, but state law mandates that all insurers writing ordinary insurance policies participate in them. With the exception of New York state, the associations have few hard assets and instead depend on nearly unlimited taxing authority.
“Congress needs to be ready to deal with this problem,” Lehrer concluded.