N.Y. Dept. Says AIG Investigation Continues

July 23–The New York Insurance Department said last week that an announcement it had issued a week earlier stating that an American International Group subsidiary made $500,000 in “illegal” premium collections was released inadvertently and the activity is still under investigation.

The news release, issued on July 17, stated that New Hampshire Insurance Company, as a result of a department investigation, had returned $500,000 to 600 policyholders hit with illegal charges for terrorism insurance on their homeowners policies.

Terri Marchon, a spokesperson for the department, said the initial news release was “premature,” offering an explanation for the fact that the release was subsequently pulled off the departments Web site.

Noting that the collection of terror premiums is a complicated issue, Ms. Marchon told NU that New Hamphires charges need to be examined further and that the news release characterizing the charges as illegal was sent out inadvertently.

The original announcement said that under the Federal Terrorism Risk Insurance Act “insured property that has less than four units is considered a personal lines policy and terrorism insurance is automatically included in the policy. The insurer is not permitted to charge an additional premium for terrorism coverage.”

In the announcement, homeowners in New York were given an 800-number to call if they suspected they were being illegally charged.

In addition, Insurance Superintendent Gregory Serio was quoted as saying that his department is “vigilant about ensuring that the Federal Terrorism Insurance Act is implemented to the letter of the law.”

The announcement was issued by Joanna Rose on her last day with the department as director of public affairs. Ms. Rose, who is now with the Lower Manhattan Development Corp., told National Underwriter that she had “no comment regarding [her] former agency.”

AIG has had no comment on the announcement.

While stating that the matter is being looked into, Ms. Marchon did not answer questions as to what AIGs explanation for its activity was, who in the department is conducting the investigation, how it began, or whether it was or would be referred for criminal prosecution.

Several industry experts, reacting to the original announcement (and not the later information that there is an ongoing investigation by the department), said activity by a company of the sort referred to in the announcement is highly unusual and that the insurer appeared to have gotten off easily.

The initial announcement made no reference to any punitive action by the department.

Assemblyman Alexander “Pete” Grannis, D-Manhattan, who heads the Assembly Insurance Committee, reacted to the initial department description of how the case was handled by saying, “It doesnt send the right message if a slap on the wrist is the only consequence for a business practice of overcharging.”

Michael Bownes, general counsel for the Alabama Insurance Department who chairs the investigations subgroup of the National Association of Insurance Commissioners, said, in his experience, he had heard of illegal charges being tacked on by individual agents. But “Ive never heard of any company doing that,” he said. “Youre misleading the department if you dont let us know all the charges.”

Robert Hunter, insurance director for the Consumer Federation of America, said the overcharge, which averages out to over $800 a policy, was “outrageous.” He said it was well known that industry requests to charge homeowners for terrorism had been turned down, and “it sounds like more than a simple mistake.”

Mr. Hunter said that when he served as Texas insurance commissioner, occasionally he had seen companies deviously round up numbers in their favor. But in the New Hampshire case, “Ive never heard anything quite so stupid. No one could miss it. How could you miss an $800 charge? People were going to obviously yell. It seems bizarre to me.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 28, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.