Q&A on AIG

ASJ: What does this mean for the life insurance market in general?
WK: The companies that have retained their ratings are doing much better and are attracting policyholders. Anyone with an AIG policy is probably waiting to see what happens. People need insurance, though, so they will go to the best players in the industry. This is where the [agent] is highly important, to guide them to [these companies]. This is when they should be proactive, getting as much information out to the client, keeping them informed of their options.

For [agents], a down market is when you can capitalize on your market share. When everything is doing good, it’s harder to increase your market share. But if you stand out in a down market such as this, this is when you can increase your market share. The good reps are aware of this and are communicating with their clients.

Don’t leave your clients just hanging; you don’t want them to be getting the information from the talking heads. You want to be the one getting the right information to your client. But it just goes to show you, even as you develop a business, as a life agent, it’s like anything else — you have to diversify. Think of this like your portfolio. If you get tied to any one company too much and something happens to that company, you can see your business blow up on you.

ASJ: What is the industry doing right now to get out of trouble?
WK: AIG right now is to unwind their contracts in an orderly fashion. I know people were mad at the bonuses made to AIG executives who were there to unwind the contracts, but that was probably the best situation in a bad scenario. They paid out $161 million and change in bonuses, but that probably saved the government billions more.

Obviously, there will be more regulations. AIG really got into an area that was not their forte. They were good at distribution services and products, but they really got into an area that was a bubble. I think people should have been a little smarter. When you have a bubble, nothing goes up forever, and everybody was betting on the house market. As the quality level deteriorated, it just unraveled.

ASJ: In May 2009, the U.S. Department of the Treasury approved TARP funds for six insurers. As of press time, two — Hartford and Lincoln National — had accepted. To date, AIG has been the only insurer to receive TARP funds. How do you see this affecting the companies that accept, as well as those that were offered the money but may turn it down?
WK: The government was trying to avoid a housing crisis, followed by a credit/banking crisis, followed by an insurance crisis. It is like the car makers – if you don’t accept, you are seen as a strong entity that is going to survive. If you accept, from a marketing stance, it will raise questions and will most likely hurt sales. As a side note, AIG was selling their investment management arm two months ago for about $800 million. It looks most likely the deal will close for about $500 million; the change of price most likely was caused by asset runoff. So, headline news of [insurers] accepting government money can [clearly] have significant penalties, both by the government and the investing public.