Insurance Merger Creates Curious Union

While many 20th Century Insurance Co. employees and customers may be breathing a sigh of relief over the entrance of a white knight in the form of American International Insurance Group (“$26-Million Rescue Deal Would Revive 20th Century,” Sept. 28), the fact is that such a marriage is at least curious. It does not appear to be one where, in the long range, the sum will be either equal to or greater than its parts.

AIG is a multinational commercial insurance giant that writes insurance through independent agents and brokers, to whom they pay significant commissions. Twentieth, on the other hand, is a direct marketer, relying mainly on advertising, mail and telephone solicitation and word of mouth.

Twentieth’s long-term profit picture would be greatly affected if they were paying commission annually on every policy. Profits aside, the most synergistic and symbiotic relationship for two carriers so positioned would be to share marketing.

The problem is that there has never been any large-scale success where direct writing and independent agents were utilized. The independent agent will do a type of field underwriting that would best be described as akin to what the marketing department should be doing. In addition, a good commercial risk does not make for a good personal auto risk.

Long-term, I do not see this as a successful combination. What 20th needs is to combine with a direct writer, with marketing structure of a similar nature.

HOWARD PRINCE

Agoura Hills