AIG Settles With Regulators For $100 Million

Troubled insurer AIG has reached a settlement with insurance regulators across the country and agreed to pay a $100 million fine for having systematically mis-reported Workers' Compensation insurance premiums as other kinds of liability insurance. In addition to the fine, AIG will pay $46.5 million in fees and assessments, and has agreed to a potential $150 million in further fines if the insurer does not follow a compliance plan.

This was the same kind of mis-reporting of Workers' Comp insurance premiums that was the basis of a major prior settlement with New York's then Attorney General Elliot Spitzer.

It's unclear at this point how this settlement may impact the ongoing federal lawsuit between other Workers' Comp insurers and AIG. In that lawsuit, the other major Workers' Comp insurers claim AIG damaged them because they had to pick up the slack when AIG dodged fees and assessments for Workers' Comp assigned risk programs by mis-reporting Workers' Comp insurance premiums.

AIG's defense in that lawsuit has been to claim that the other Workers' Comp insurers engaged in similar behavior. Which leads to the question: if that federal trial uncovers evidence that other insurers did engage in similar behavior, will regulators have other targets to pursue? Or does this settlement with regulators presage a similar settlement by AIG with the other insurers?

The other unanswered question is this: to what extent did AIG's misreporting of Workers' Comp premiums distort the ratemaking process for Workers' Comp insurance? Is it possible that the $2 billion in Workers' Comp premiums that AIG has now admitted to mis-characterizing as other kinds of insurance introduce distortions in the data used to compute premiums for all other Workers' Comp policyholders in the U.S.? Did AIG cause premiums for employers all over the U.S. to be higher than they should have been, because AIG was hiding these Workers Comp premiums?