AIG's Other Reputation
When his pickup truck developed engine trouble a few years ago, Anthony A. Stankus filed a claim under an auto warranty he had bought from a unit of insurance giant American International Group Inc.
Soon the Phoenix consultant got his answer: Claim denied.
Most policyholders would have left it at that. But Stankus sued -- and won a rare look at the internal claims-handling practices at the world's largest insurance company.
As it turns out, AIG was losing more than $210 million on auto-warranty claims, provoking the ire of the company's longtime chairman and chief executive, Maurice R. "Hank" Greenberg, according to court documents. As a result, in mid-1999, a newly installed team at AIG 's auto-warranty division began to reject thousands of claims -- including half of the claims that its own contractor, a claims-handling company, recommended be paid, according to court papers. Stankus 's claim was among them.
Any modification to a car could be used as a reason to reject, Richard John Jr., a former senior vice president of the claims-handling company, Mechanical Breakdown Administrators Inc. of Scottsdale , Ariz., testified -- even installing manufacturer-approved new tires or, in Stankus 's case, a trailer hitch. When John protested, he said an AIG official told him, " 'We are losing X number of million dollars a year on these programs, and we've got to do something.' "
AIG has declined to discuss individual lawsuits. But Charles R. Schader, AIG's senior vice president for claims, said the company never denies claims to boost profitability. He said that -- allowing for an occasional mistake -- AIG pays legitimate claims promptly and gets few complaints.
"If we didn't pay claims, including the large ones, we'd be out of business," Schader said.
These days AIG is on the defensive ....