Leading Insurance Company Secret Revealed - AIG Life Insurance Organization & Others Risk All Buying Business
As an insurance insider I will reveal why the failing of AIG Life Insurance Firm was destiny, not fate. The top insurance secret reveals the practice of AIG Life Insurance risking all for financial glory. Other insurance firm headquarters like AIG have commonly manipulated business risk. See why buying business is a risky financial explosion rarely succeeding.
Sure you read and saw on the news lots of reasons why AIG is a still a failing life insurance company that will never recover the financial status it once had. The liquidity crisis caused by dealing in derivatives tied to the downfall of the real estate market in the United States is not surprising. Dealing in subprime mortgages seemed a certain bet to obtain high profit returns. Lots of life insurance companies did it also. However it is now revealed that only a little over a dozen show any possible failing financial outlook.
This dirty dozen, did almost everything the same as AIG Life Insurance Organization. Products were offered by agents and brokers that were equity indexed annuities. These products sold mainly by industry giants, put the annuity policies offered by other companies to shame. Before the financial bailout, the insurance and financial trade magazines were loaded with top ads revealing why their products were the best agents could ever offer their clients. All of these companies should be accused of greed. Fortunately for their financial sake, these other providers still promoted other annuities and various profitable life and health insurance products.
The Leading Secret Revealed
AIG pulled out one of the most dangerous secrets in the industry. To gain insurance market share the easiest way is "buying business". In the competitive insurance market to have to have a large field force of agents selling your products to stay or become an industry leader. Companies like Metropolitan, Prudential, New York Life, and others were hard to jump ahead of with name recognition and plenty of agents. To move up, AIG Life Insurance Organization each year kept trying to climb the charts to become the number one business with the most assets They enacted an old trick works that works for some insurers, and causes the financial downfall of many more.
How Buying Business Works
Almost all health and life insurance products plus non-institutional annuities are directly sold by insurance agents. The average agent has great difficulty in selling an annuity. Other financial orientated agents make their living selling annuities and investment products. AIG Life had a plan that could combine annuity and great investment. Nonetheless, the equity indexed annuity product cannot sell itself. That is when the firm began the process of buying business. The purpose being to sell massive quantities of a product so you can bypass the assets of insurance companies ahead of you. You then become the top dog with other carriers chasing you.
The process involves giving clients the highest payouts on money invested, and pay selected insurance representatives the highest commissions for selling their annuity product. AIG Life decided to do a similar concept with their term insurance, as new policyholders ordinary do not die for awhile. Therefore, little money would initially be spent on paying claims. The client received the cheapest term insurance rates that were often 30% less than other major companies. The independent agents were rewarded with commissions well beyond the normal 60% to 70% range. In fact the commission varied from 80% or over 100%.
Easy sales and lots of them were racked up by the selling agents, bringing in more money than ever before. In turn, AIG was revealing gigantic increases in the amount of premiums collected. They were skyrocketing in the industry charts. Suddenly all came to a halt. The real estate mortgage crash which few experts predicted was the real crusher.
Their poor planning style on buying business was greed motivated, poorly planned, and misfortune bound.
When you offer the lowest rates, or highest investment return, plus pay the highest insurance company commission eventually lightning will strike This is the effect of buying business. AIG felt after accumulating enough business they could gradually raise rates, and have an established base of agents selling more profitable policies. AIG did not realize that agents that sell annuities and term insurance are not loyal. A better offer from a competitor and the business will then stop to flow. There they were caught in a death trap set to occur. If the liquidity crisis did not take place first, eventually all the cheap term policies would have turned into expensive death claims forcing them into business receivership.
The consequences of buying business could take many years to occur. By then their fat salaries and astronomical bonuses could have cushioned them into a guaranteed retirement plan. The insurance firm like other companies that engaged in buying business were doomed to fail. The failure was no secret to me, as I have seen so many cases of buying business eventually causing an health, annuity, or life insurance business go into state receivership.
The logic of governmental & taxpayer bailout is far from a guaranteed solution. On that subject I will leave it to anyone who passed Economics 101 to explain.
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