State Insurance Officials Work to Calm AIG Policyholders

The U.S. government may have seized control of American International Group two weeks ago, but state insurance regulators and guaranty associations are still fielding calls from panicked holders of policies from the insurance giant.

Officials are also stepping up efforts to prevent unscrupulous insurance agents from swooping in and frightening customers into selling their AIG life insurance policies and annuities, which are popular retirement products. Several state regulators, including those in Maryland and the District, have warned agents that such tactics are illegal. Some, such as those in New York and Kentucky, are actually investigating complaints from consumers.

"Consumers are concerned about the viability of their policies," said Thomas Hampton, commissioner for the District's Department of Insurance, Securities and Banking. "We've been trying to be on the forefront about providing information to consumers. There's a lot of misinformation out there."

The most common questions consumers are asking are these: Should they cancel their AIG life insurance policies and switch to another provider? Should they get out of their annuities?

The answer: Stay put, regulators say. If you cancel your insurance policy, you might not even be able to get a policy elsewhere, depending on your health. If you pull out money from your annuity, you will probably incur a steep withdrawal fee.

"The principal thing they should know is not to panic," said John Boritas, executive director of the Maryland Life and Health Insurance Guaranty Corp. "It will not be to their benefit to act rashly."

The government bailout of AIG has confounded many consumers in part because the insurance business is so difficult to understand, the experts said. State regulators and guaranty associations, which protect insurance policies and annuities if a company is declared insolvent, have been working furiously to help consumers understand that AIG is a holding company with many subsidiaries, including the insurance companies that actually service policies.

AIG may be troubled right now, but its insurance subsidiaries are not and they have enough money to cover claims, regulators say.

Even if an insurer is declared insolvent, each state's guaranty association will step in to ensure your funds are protected. The amount of coverage you get varies from state to state, but typically, you will be able to recoup up to $300,000 in life insurance death benefits, $100,000 in cash surrender or withdrawal value for life insurance, and $100,000 in withdrawal and cash values for annuities (variable annuities, which contain money invested in the stock market, are not always guaranteed because the consumer assumes the investment risk.)

"We all know that the insurance companies are quite solvent. It's the holding company that has the problems," said Susan Voss, secretary-treasurer of the National Association of Insurance Commissioners and commissioner of the Iowa Insurance Division.

Nonetheless, consumers are reaching out for more information.

Robert Bland, chief executive of Insure.com, which rates insurance companies, said in each of the last two weeks, his firm received more than 4,300 requests for financial stability ratings of insurance companies. Typically, he said, he gets about 3,000 per week.

"For the consumer, this is very confusing," he said. "The level of angst is clearly the highest I have ever seen it. There's no question there has been tremendous damage to the AIG brand, but going beyond the AIG brand I believe there is a new level of angst out there that is going to be with us for a while."

It hasn't helped that some agents have been calling customers and telling them they should abandon AIG because of its troubles. AIG spokesman Joseph Norton said the company has reported complaints of unfair sales practices on the part of its competitors, both domestically and overseas, to insurance regulators.

Steve Nachman, deputy superintendent for fraud and consumer services in the New York State Insurance Department, said he has received dozens of complaints. Most states will impose a fine or even suspend the license of an insurer found guilty.