November/December 2008 / Cover Story
The Credit Crisis Threatens D&O Liability Insurance
The American International Group (AIG) is the largest seller of D&O Insurance, Employment Practices Liability Insurance, property insurance, and umbrella and excess liability insurance in the United States.
As a result of a liquidity crisis following the downgrade of its credit rating, the Federal Reserve loaned money to AIG in exchange for warrants for a 79.9 percent equity stake and the right to suspend dividends to previously issued common and preferred stock. This will profoundly impact major insurance markets. According to the author, it remains to be seen how a government-run AIG will handle claims.
There has been speculation that easier claims payments might help AIG secure renewal business with desirable clients. But post credit crisis financial pressures act as a countervailing force in respect to paying claims. AIG’s new CEO is former Allstate CEO Edward Liddy. The American Association for Justice, the author notes, identified Allstate as “a poster child for insurance industry greed.” On balance, says the author, AIG policyholders have good cause for concern.
He advises reviewing insurance policies, pursuing the coverage for which you paid and going after “OPI” (other people’s insurance), where available. If your organization faces losses related to the subprime mortgage mess, it may be that an aggressive program is needed to obtain the insurance coverage it already paid for.
