AIG Rip Offs Hit Louisiana Policyholders
Thursday, October 23rd, 2008
Baton Rouge, Louisiana
The financial crisis on Wall Street has filtered down through the insurance industry, with a number of major insurance companies facing a rocky road in the coming weeks. The New York Times concluded this week that “insurance companies are now being battered, suggesting that a similar round of consolidation and recapitalization may be in store.” Many national insurance companies are under siege, and even though Louisiana is a small state in population, policyholders will be affected proportionally at a much greater degree than in most other parts of the country.
The reason for this is that Louisiana is a major customer for many insurance companies both nationally and worldwide. It’s not the population that matters. It’s where the risks are located. And there are a number of major companies operating in Louisiana that have significant exposure for insurance purposes.
Just imagine the cost of insuring the offshore oil industry operating along Louisiana’s coastline. How about the nation’s largest chemical industry located up and down the Mississippi River? And there are major risks to insure in the first, third, and fifth largest ports in this country all located in Louisiana. In short, Louisiana is in the top five of states that have the highest industrial insurance risks.
The first major insurance company to be bailed out as the Wall Street crisis evolved was the American International Group (AIG), which is the largest insurance conglomerate operating in United States today. AIG has a major presence in Louisiana, with a number of its subsidiary companies selling both property and casualty insurance as well as life insurance. The Federal Reserve System’s bailout of AIG cost taxpayers $85 billion. If you apportion this amount among 300 million citizens in our country, your personal bill will be $280. So if you have a family of four, their share is $1200.
Here is a question to ask. Do you feel that you are getting your money’s worth from this bailout? Has the AIG bailout been a rewarding experience for you and your family, well worth $1200 subtracted from the college funds of your children? You would think your sacrifice would cause the executives of AIG to be appreciative, toe the line, and work around the clock to try to straighten out the mess they have created … right?
Well the first thing the AIG execs did after receiving your taxpayer financial infusion was to spend more than $440,000 entertaining their top executives at the posh St. Regis resort in California, including golf, massages, manicures, pedicures, the works. These folks sure know how to show their gratitude. You can imagine the criticism the company received for this junket. But after getting roasted for the taxpayer – funded weeklong retreat, far from learning a lesson, the same top executives thumbed their noses at taxpayers and kept on spending your money.
AIG begged and pleaded for more bailout money, and the federal government graciously complied by giving the faltering company an additional $37.8 billion in taxpayer – finance loans. So how did the top execs respond? They took off on an $86,000 hunting trip to shoot partridge in England. Company officials answered the new wave of criticism by saying that the hunting trip in the English countryside had been planned for months before the bailout.
The question many people are asking is who is supposed to be watching out for these shenanigans? Who regulates companies like AIG? And why have they been allowed to get away with such outrageous and irresponsible behavior? But wait! This is the era in Louisiana of little or no regulation. Keep government off the backs of the private sector. Do not bog down insurance companies with all these regulations that tie their hands. You can trust them with your money…right? Let the free market reign.
And Louisiana has been in the fore front of this laissez-faire approach to insurance regulation. In most states, companies selling automobile and property insurance have to apply for approval of any rate increase to the insurance department in any state where they want to sell insurance. Not in Louisiana. The Insurance Rating Commission was abolished last year, and companies are free to raise their rates on a regular basis.
In virtually every other state in the country, there is a consumer protection office, often located under the office of the Governor or the Attorney General, which independently checks and audits to be sure that regulated companies are following the law. That would apply not only to insurance companies, but also to utility companies that have a monopoly operating in certain areas of the state. But not in Louisiana. There is no independent check and balance. And the loser, of course, is the policy holder, the ratepayer, the consumer.
In the case of AIG, although they have a major presence in Louisiana, insurance officials have chosen not to audit their activities. In years past, no insurance group was immune from being audited, particularly as financial problems began to occur. In 1993, Louisiana joined Texas in doing the first major audit of Lloyd’s of London, the world’s largest insurance company. But since the deregulation mode has obtained a firm grip on Louisiana, major companies like AIG have become free from state oversight.
The New York Attorney General has, just in the past few days, undertaken what his office says is to be a “major investigation” of AIG mismanagement and abuses. Andrew Cuomo said in announcing his financial review of the company, “AIG’s belief is that they can have the party, and the taxpayers will have a hangover.”
The concern for Louisiana policy holders is why an official in another state has to undertake an investigation of potential mismanagement and misuse of funds that come out of the Bayou State? There is no pre -approval of increasing your insurance rates that are now the highest in the nation. There is no more Insurance Rating Commission that has now been abolished by the legislature. And Louisiana law specifically prohibits giving its citizens separate insurance consumer protection by the Attorney General or any other official office.
So the bottom line is that, thanks to the legislature, you have less protection as an insurance policy holder that just about any other state in America. And while the AIG shenanigans continue to be ignored in Louisiana, the politicians in Washington keep telling us that companies like AIG, for the good of the country, have to be saved. The goal seems to be to keep billing taxpayers no matter what the cost. For while in the eye of politicians these companies are “too big to fail,” you and I aren’t too big to fleece.
“A government, for protecting business only, is but a carcass, and soon falls by its own corruption and decay.”
Amos Bronson Alcott
Peace and Justice.
JIM BROWN’S NEW BOOK NOW AVAILABLE
That’s right. Jim’ NEW book is now in print and available for your review.
It’s called: “Adventures in an Alternative Reality of Living in Louisiana-Enter at Your Own Risk.”
Quite a title. You can check out the new book, and find out how to order it by simply going to his publishing site at http://www.authorhouse.com/bookstore/ItemDetail.aspx?bookid=54455
The book is a continuation of Jim’s perspective, often zany and offbeat, but full of “on the mark” insights of Louisiana political and social life. So give it a look. It’s available in both hardback and paperback.
Jim Brown’s column appears weekly, and is published on a number of newspapers and websites throughout Louisiana. You can read past columns by going to Jim’s website at www.jimbrownla.com. Jim’s regular radio show on WRNO, 995fm out of