N.Y. Dept. Says AIG Investigation Continues

N.Y. Dept. Says AIG Investigation Continues

By Daniel Hays

NU Online News Service, July 23, 12:10 p.m. EDT?The New York Insurance Department said today that an announcement it made last week stating that an American International Group subsidiary made $500,000 in "illegal" premium collections was issued inadvertently and the company's activity is still under investigation.

The news release issued last Thursday, stating 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 was "premature," said spokesperson Terri Marchon.

Ms. Marchon said there is an ongoing investigation and the collection of terror premiums is a complicated issue, which needs to be examined further and the news release characterizing the charges as illegal was "inadvertent." The announcement was pulled off the department's Web site yesterday.

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."

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., said today that she had "no comment regarding my former agency."

AIG has had no comment on the announcement.

While stating that investigation is continuing and the announcement was inadvertent, Ms. Marchon did not answer questions as to what was the company's explanation for its activity, who in the department is conducting the investigation, how it began and whether it was or would be referred for criminal prosecution.

Several industry experts, reacting to the original announcement and not the new 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 company 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 Friday to the department description of how the case was handled by saying, "It doesn't send the right message, if a slap on the wrist is the only consequence for a business practice of overcharging."

Mr. Grannis could not be reached today. His office said he was on vacation until Friday.

Chris Olli, associate director of the committee and a member of Mr. Grannis' staff said she was familiar with New Hampshire Insurance because the office had handled a related complaint from a consumer who was being charged commercial policy rates "even though the risk was not" a commercial risk. She said Mr. Grannis' office got the insurance department to correct the situation.

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 "I've never heard of any company doing that," he said.

"You're misleading the department if you don't let us know all the charges."

Robert Hunter Insurance director 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, "I've 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."