Insurer Uses Hurricane to Promote Rate Hike : Premiums: On day storm hit Florida, executives at American International prepared memo urging brokers to raise prices.
While Hurricane Andrew was whipping South Florida, executives at insurance giant American International Group in New York were preparing to take advantage of the disaster by raising premiums, according to an internal memorandum obtained by The Times on Friday.
“This is an opportunity to get price increases now,” Executive Vice President Jeffrey W. Greenberg wrote in the memo to “Company Presidents, RVPs (regional vice presidents)” on Aug. 24, the day that Andrew struck Florida, killing at least 17.
Greenberg, son of AIG’s chairman, Maurice R. (Hank) Greenberg, correctly predicted that the hurricane “may cause the industry the biggest storm loss ever.” He exhorted top managers to act quickly.
“Begin by calling your underwriters together and explaining the significance of the hurricane,” Greenberg wrote in the two-paragraph memo. “This is an opportunity to get price increases now. We must be the first, and it begins by establishing the psychology with our own people. Please get it moving today.”
J. Robert Hunter, president of the National Insurance Consumers Organization, reacted with outrage. “This memo is so opportunistic,” Hunter said Friday. “They’re trying to take advantage of people’s hardship. They’re lying in wait for the misery.”
Harvey Rosenfield, chairman of Voter Revolt, the Los Angeles-based organization that sponsored the Proposition 103 insurance rollback initiative, said Friday that he would call on Insurance Commissioner John Garamendi and other regulators “to be prepared for an attempt by American International and possibly other insurers to try to take advantage of this tragedy to unjustly raise premiums.”
The senior Greenberg did not back off after the memo came to light. He told the Washington Post that it reflected his own views “completely.”
“It’s essential to price your product to cover loss costs and expenses,” he said Friday. “That’s the business of insurance.” Prices should rise, he added, and “somebody’s got to lead the parade.”
Hurricane Andrew is the costliest U.S. disaster ever, with insured damage of $7.3 billion estimated for Florida alone. It pushed the catastrophe loss total for 1992 to $11.2 billion--an all-time high.
But some experts have questioned the necessity for price hikes.
Michael Frinquelli, an analyst for Salomon Bros., said earlier this week that the strong bond and stock markets have bolstered insurance companies’ investment profits, pushing the industry’s capital and surplus to a record $160 billion.
He saw no reason for the storm to prompt insurers to reverse a lengthy cycle of flat or falling premiums. Sean Mooney, economist for the Insurance Information Institute, agreed in an interview last Monday, saying he expected only localized price increases in Florida.
But AIG, in the internal memo, saw it differently: “The industry cannot absorb the loss and cash hit without increasing rates. We have opportunities from this, and everyone must probe with brokers and clients.”
Led by the iconoclastic Hank Greenberg, AIG is known for aggressiveness and independence. The company does not join insurance trade groups, and it goes its own way in pursuing business. AIG, for example, operates in 130 countries and earns about half of its profit overseas. Profit last year was $1.55 billion on revenue of $16.9 billion.
