NCCI Sues AIG--For A Billiion Dollars

There's been an extraordinary development in the world of Workers' Compensation insurance in the past few days--the NCCI has sued American International Group (AIG) for a billion dollars. NCCI, the National Council on Compensation Insurance, is the insurance industry group that writes the classification and audit manuals used for Workers' Compensation insurance in most states. NCCI is essentially owned by insurance companies that write Workers' Compensation insurance, so it's an unprecedented event for this organization to file suit against a member insurer such as AIG--and for a billion dollars, no less.

The suit stems from something that had been uncovered by New York Attorney General Elliot Spitzer: AIG had for years been reporting a lot of Workers' Compensation premium as if it were other kids of liability insurance premium instead. This enabled AIG to avoid its fair share of Assigned Risk Workers' Compensation business, which tends to be unprofitable. And NCCI administers the national pool that makes the Assigned Risk system work in most states. Thus, AIG's deceptive practices made other insurers pick up more than their proper share of this Assigned Risk business. The suit by NCCI charges that the damages to other insurers was a billion dollars.

AIG, for its part, has responded that its settlement with Spitzer for $300 million dollars should have closed the book on this matter, but NCCI doesn't seem to agree.

A lot of insurance industry professionals have pooh-poohed Spitzer's investigations of their business, but this lawsuit would seem to suggest that there was even more to the story than even Spitzer documented.