Insurer security and you Featured

7:00pm EDT November 25, 2008

If you have a commercial insurance policywith AIG, you are no doubt wonderingwhat the challenges of this insurance behemoth mean to you and your business.

Before discussing this important issue,businesses need to first understand that AIGis a parent financial company whose subsidiary insurers are separately capitalizedand regulated by state insurance departments, which have capitalization requirements and monitor insurer solvency.

Secondly, given all that’s occurred in thefinancial markets over the past few weeks,AIG is not alone in facing challenges.Therefore, while the focus of this article isAIG, these comments hold true for many ofthe major commercial insurers common tothe middle and major account markets.

AIG, along with its commercial insurancecompanies, services hundreds of thousandsof businesses throughout the U.S. and hasbeen a major insurer to the U.S. financial system. While the hope is that AIG will get control of its complex financial problems withthe help of an $85 billion federal loan, whatshould business owners do in the meantime?

“Everyone is concerned about AIG’s future:brokers, investors, insurance agents andclients,” says Jerry Kysela, a resident management director for Aon, one of the nation’slargest brokers of insurance to AIG and othercommercial insurers. “But, we are not making specific recommendations to stay or go.”

Smart Business spoke with Kysela abouthow AIG’s crisis may affect your commercialinsurance and steps to take right now toensure that you and your business are protected in case AIG’s situation worsens.

What should AIG commercial clients do, rightnow, to protect themselves?

First, don’t panic. Clients need to understand, with clarity, the AIG situation and notlisten to spin or hearsay. What is importantare the facts that have occurred, and whereAIG stands at the moment. This is information that AIG commercial clients should bereceiving from their broker or insurance professional. Talk to your broker and make sureyou completely understand the issues. Yourbroker or insurance professional shouldalready be giving you lots of up-to-date information about AIG’s present situation andplans for the future.

Should the AIG insureds be asking the brokerto help them make a decision?

A good insurance broker will provide thenecessary information for the client to makean informed decision to stay or move toanother insurance company. To assess AIG’sfinancial stability, I would recommend doingyour own due diligence using the industrydata available, such as Moody’s, Standard &Poor’s, and A.M. Best Company, just to namea few.

Should AIG customers be looking at otherinsurance options at this point?

Your broker or agent should be giving youadvice about other insurance options, butthat doesn’t mean you should, in a panic,switch to another insurance company, even ifyou could. Instead, if your business is facinga renewal during this turbulent time, you andyour broker should carefully researchoptions as part of your renewal strategy. Yourbroker or insurance professional ought to beproviding the facts about AIG and helpingyou make a comparison of the AIG situationversus a competing insurer, many of whichare having their own financial challenges.

It is a complex decision to change insurance companies and cannot be made hastily.

There is a lot at stake — important balancesheet protection, complex coverage issuesand cost. Commercial insurance is not acommodity and insurers will not take on newcommercial clients without a completeunderwriting process. Most insurers are cautious and don’t necessarily want to add aflood of commercial policies without assessing the risks, even if they are opportunistic asa result of your current insurer’s challenges.

If you are even considering switching yourinsurance companies, you need to start getting your underwriting data together early toget a full and concise submission.

Work with your broker to form a strategythat will enable you to completely evaluateall options, including an AIG renewal. Makesure your broker has significant relationshipswith the new insurers, in order to increaseyour chances of negotiating viable options.

When comparing AIG to another insurancecompany, what should a customer look for?

Price is one consideration. AIG fills animportant role in the commercial insurancemarket. It understands complex risks and foryears has filled this niche as a very competitive insurer from both a cost and coverageperspective. Replacing AIG insurance mayactually cause a client an increase in costs.That kind of increase in premiums will notwork for many businesses in this tough economy. Accordingly, AIG, under current circumstances, remains a very viable option.

Customers also need to look at thespecifics of the other insurance company’sproduct including coverage, program design,deductibles, claims knowledge, underwritingknowledge and longevity in the business.

Your broker should be able to make a recommendation about the strengths of the various insurance coverage options, includingprice, coverage terms and conditions, claimspayment history, financial rating and otherfactors you would want to consider beforemaking your choice of carrier.

The important thing right now is for customers to do the following: understand thesituation, get options and evaluate the data.That alone is a huge undertaking and willtake longer than you think. It’s best to startthat process sooner rather than later.

JERRY KYSELA is the resident managing director for Aon ( Reach him at (216) 623-4150 or