Would You Insure With AIG?
American International Group (AIG), one of the world’s largest insurers, has been in the headlines quite often over the past year. Unfortunately, all of its appearances were in bad light.
It nearly went bankrupt in September 2008. It was then saved by the US taxpayers in one of the biggest government bailouts in history: it received about $180 billion in aid. The insurer recently made it into the Guinness Book of World Records with the $62 billion loss for the fourth quarter of 2009, the largest ever. Finally, it became perhaps the most hated company in America when it revealed executive compensation bonuses of $165 million, that was paid out despite the companys dismal performance.
Counting other people’s money is a favorite pastime of many people, envy is a common human trait, and mass media lives off this type of soap opera. But even the least envious of us are wondering whether it is really fair and appropriate to pay millions of dollars to the top managers who have driven their company into the ground, and now rely on the taxpayers to keep it alive.
Things are not as simple as your local newspaper makes it look. The executives that were to blame for the AIG disaster are long gone, and their generous severance payments cannot be recovered. The bonuses you hear about are mostly paid to employees who had nothing to do with the misdoings. Many of them are working for a very modest salary (relative to other jobs they could get), in the hope of getting a good bonus at year end. In fact, one of the executives in question, Jake DeSantis, published an open letter in The New York Times. In it, he explained how he had agreed to work for no salary in return for a promise of a decent bonus by AIG’s CEO. He felt betrayed, and unfairly penalized for doing nothing wrong. He resigned and gave up any bonus promised to him.
On the other hand, the payment of over one million dollars each to the executives appeared in poor taste when you realize that it is funded by the taxpayers, many of whom are struggling in the recession and may be losing their homes to foreclosure. And the law that allowed the bonuses to be paid was pushed through Congress by Senator Christopher Dodd, who received numerous donations from AIG employees, a typical example of a politician for sale.
For better or worse, this is the reality of a modern world: some people are rich, others are poor, and the two groups will always argue about what’s ethical and fair.
What do you think? If you had to choose an insurance policy, and AIG came with a competitive quote, would you go for it? Or would you rather pay more to a company that you consider more ethical?