Lessons Learned from the AIG Crisis

Insurance Journal‘s exclusive “AIG in Crisis Survey” asked independent agents: What insurance, management, economic, regulatory or other lessons the industry and public should learn from AIG’s crisis? Here’s what some of the 1,000 respondents had to say:

• “Ordinarily, I am against government control of business, but, present day greed has proven a need for some control. However, I don’t believe that our government can provide that control. The fed is somewhat responsible for this financial crisis because of their insistence that banks provide mortgage loans to marginal qualifiers. So that is an example of government control. It doesn’t always work the way that it is supposed to. Until we begin to operate our businesses so as to generate a reasonable profit (not like Exxon-Mobile) and also keep in mind our objective of providing goods and services to the consumer, we will stay in trouble.”
• “What happened to old fashioned loan underwriting? Need to qualify buyers (obligee) and disallow unqualified brokers in the mortgage business.”
• “There should be federal regulation on all financial transactions as they relate to every industry. Executives should be held accountable and even prosecuted to the full extent of the law!”
• “We need strong state regulation.”
• “Put the wall between banks, securities and insurance back up. It did not work!!!”
• “It shows that federal regulation of banks is very poor and the fed should learn from it. States do a better job.”
• “Unfortunately, I don’t think they will learn anything; never have, probably never will.”
• “Executives and boards of directors need to be accountable for the business conducted. This is not about understating reserves or underestimating losses, this is a case of more Enron type greed. Shareholders can’t just put the money in their pockets and ignore such outrageous behavior, then expect to be made whole when the bubble bursts. I think the lessons are to always be aware that if it seems to be too good to be true, it probably is, so check it out early and often. The de-regulation of banking is possibly the root cause, with money being lent on little or no information to people with little or no way to repay, starting an upward spiral in real estate. Then the poor guy who can’t pay his loan is refinancing to take out what equity he has earned to pay off the original loan and hoping to keep the spiral going upward. It didn’t.”
• “Repeal of Glass Steagall was the beginning of this crisis, coupled with Graham, Leach, Bliley permitted combinations of investment banks, commercial banks and insurers to be exposed to each others’ concentrations. In this case, the credit default swaps which are totally unregulated (hedge funds) are the 800 lb. gorilla in the room. State regulation works better than federal regulation as long as you keep the non regulated entities separate. Bring back Glass Steagall!!”
• “Financial disclosure transparency is an absolute must going forward for all public companies.”
• “Banks are banks, insurance is insurance, do what you do well and quit trying to be everything to everyone … get over the fact that another company might have a better return and shareholders are not the only persons that the board of directors are responsible to! Hell we went back to a Depression era law to bailout the greedy. One day we ‘the United States’ is going to need to let greedy, unscrupulous companies fail.”
• “Pay attention to the downside of the exposure as well as the income.”
• “Don’t insure something unless risk is quantifiable and understood.”
• “Stick to your core business and if you decide to stray do so in a very controlled, calculated and conservative fashion.”
• “Being the biggest does not mean you are invincible. Just because a corp[oration] pays its CEO $17,000 an hour it does not ensure good management decisions! It is impossible to predict what the future holds. Things change too fast today for anyone or any company to safeguard all their assets. In this case being diversified wasn’t even enough to save them and being the largest carrier probably prevented them from being able to react to the market changes fast enough.”
• “AIG lost focus on what it did best by trying to dominate the insurance market. Poor leadership from its management led to this disaster. Economically this could have led us into a depression because of the public perception without the bailout, but I think the industry should have moved in to fix the situation without federal government intervention. As a result the insurance industry will likely fall under greater scrutiny and lead to some federal insurance regulation.”
• “Insurance carriers should be there to serve their policyholders in time of need, not line top execs pockets at the expense of the public. The constant push for growth at any expense had deteriorated not just insurance companies but [the] industry as a whole in this country.”
• “The regulators need to regulate. The rating agencies need to do a better job too. The public corporation’s CPA firm needs to be prosecuted for assisting in this fraud.”
• “Don’t allow any company to get so large that its failure would hurt the overall U.S. economy. This should go for banks and any other type[s] of business as well.”
• “Greed is an ugly thing.”