Its now been about two weeks since the AIG financial meltdown hit the airways. The public and the insurance industry have been bombarded with numerous articles and media releases on the cause of the problem and AIG’s prospects for recovery after the announced $85 Million bailout by the federal government.

However, two essential question remain: 1) what should current AIG policyholders do? Should they attempt to move their business midterm to another carrier or should they continue with their policy until renewal and 2) what should they do upon renewal? Stay with AIG or take a look at other alternatives?

This is a complicated question to answer. First, the answer may vary depending on if the policy is for property & casualty insurance (ex: home, auto, workers’ compensation, general liability, commercial property) or if the policy is a life or annuity policy. For life and annuity policies, there may be significant early withdrawal fees and adverse tax consequences that must be taken into account. However, this issue does not arise with property & casualty insurance but there may be a short rate cancellation penalty.

As an insurance agent, I have been bombarded with about ten email notifications a day over the past week from various AIG officials, state departments of insurance, and various trade associations stating that AIG is solvent, definitely able to pay all current and foreseeable claims, and still stronger than many of their competitors. In addition, many of the large brokerage houses have decided that it is in the best interests of their clients to stay with AIG.

AIG has stated that current policyholders should stay with them for the following reasons:
*AIG’s insurance subsidiaries are totally separate from the parent company. The poor financial condition of the parent company does not affect the insurance subsidiaries as their assets are protected by state insurance regulators.
*AIG’s surplus in the insurance subsidiaries is larger than almost all of their competitors.

This positive press is reassuring, but I have to wonder how much of this is a PR campaign meant to promote stability within the industry and to prevent panic?

I have studied some press releases that indicate that AIG’s long term viability is still up in the air. Sources cite the following potential problems:

* The $85 Billion bailout may not be enough.
* AM Best may still take a negative view of AIG’s financial strength.
* AIG will need to sell some of its most profitable divisions at fire sale prices.
* AIG may lose significant market share to the competition.

As of this date, I have made the following recommendations to my clients that are AIG policyholders:

Those who hold a current AIG policy should continue to keep the policy in force until renewal. At renewal, we will offer an alternative quote for their consideration. The ultimate decision will be up to the client. Their is compelling evidence that staying with AIG is safe for the immediate future. But, if there are any doubts or questions at all, the client may want to play it safe by moving to another carrier upon renewal.