The AIG breakup - Implications for Work Comp

Thursday, March 5, 2009 | 0

By Joe Paduda

With the announcement that AIG will consolidate its P&C businesses under a single business (American International Underwriter Holdings, or AIUH), the picture is starting to get a little more clear. Or perhaps more accurately, a little less cloudy.

AIUH is comprised of the underwriting/insurance unit (AIU) and the administrative unit (Commercial) of the "old" AIG.

As such, it is now a separate and distinct insurance company with none of the add-ons, such as airplane leasing. It is too early to tell how the business will operate differently from the old ways, but not too early to speculate. Here goes:

In the past, AIG's insurance companies had to make money on an underwriting basis. They had to operate at a combined ratio of less than 100. The proceeds from premiums, or investment income, accrued to other AIG subsidiaries. This forced the insurance companies to become very very good at underwriting.

Two takeaways; If the underwriting expertise stays, AIUH will be a formidable competitor. And as the company will now be allowed to keep its investment income, its financial results should be quite attractive.

Historically, AIG has under-invested in technology and systems. Perhaps the company will now take the long-overdue measures necessary to give its employees the tools they need, and customers the access to information they are demanding.

The new company should also have the tight management focus necessary to prosper. In the past, execs were sometimes distracted by the other goings-on at the parent company. This distraction did not help keep staff focused and on top of the WC business.

What does this mean for you?

A rejuvenated, focused AIG with a strong WC business will be a formidable competitor.




Joseph Paduda's blog, managedcarematters.com, focuses on managed care for group health, workers compensation, auto insurance, cost containment, health policy, health research, and medical news for insurers, employers, and health care providers. Paduda is the principal of Health Strategy Associates.

    
The views and opinions expressed by the author are not necessarily those of WorkCompCentral.com, its editors or management.