Savvy Consumer: AIG customers protected

Texas AIG policyholders may be nervous after this week’s $85 billion bailout of the giant insurer.

The company has quite a presence in the state: AIG is Texas’ largest life and annuity company, with 12 companies licensed to do business here. Texans hold $3.1 billion in AIG policies and annuities, according to the state’s Insurance Department.

AIG’s largest Texas companies — American General Life Insurance Co. and Variable Annuity Life Insurance Co. — each have more than $1 billion in written premiums in the state, according to the Insurance Department.

There’s no danger of these AIG subsidiaries closing their doors, but regulators say they’re receiving a steady stream of calls from Texans worried about their policies.

"AIG’s life insurance, general insurance and retirement services businesses, including its extensive Asian operations, continue to operate normally and remain adequately capitalized and fully capable of meeting their obligations to policyholders," AIG said in a statement Wednesday.

The Texas Insurance Department echoes that.

"The insurance companies in Texas are separate from the holding company," said John Greeley, a department spokesman. "They are totally solvent and able to pay claims."

What most policyholders probably don’t know is that if their insurer did face insolvency — and more than 200 insurers have failed in the past three decades here — there’s protection for their policies, even investments like annuities.

It’s through two insurance guarantee associations set up by the state in the early 1970s.

The Texas Guaranty Associations (TGAs) are named after the types of policies they protect: the Texas Life, Accident, Health & Hospital Service Insurance Guaranty Association, and the Texas Property and Casualty Guaranty Association.

Acting similarly to the way the Federal Deposit Insurance Corp. protects bank accounts, the TGAs pay claims up to a certain limit, then either sell the accounts to a healthy insurer or manage the policies until policyholders can find other coverage on their own. Every state has such a program to protect policyholders.

"It’s not something that’s publicized," said Bart Boles, executive director of the TGA that covers life, accident and health policies. "But every insurance policy sold has a one-page disclosure attached with a discussion of association coverage."

Many consumers don’t read the policy or, worse, think the TGA is their insurer, he said.

"We get between 1,500 and 2,000 calls a month from people thinking we are their insurance company," Boles said.

Don’t blame your insurance agent about not telling you about the TGAs. Because coverage is limited by law, agents are prohibited from discussing the program, especially as an inducement to sell insurance products.

Customers have to ask about the protection. Agents can then point them to the TGA Web sites and toll-free numbers.

Since its inception in 1973, Boles’ TGA has overseen the insolvency of 140 insurance companies, he said. The property and casualty TGA, created in 1971, has overseen 63 failed insurance companies.

Within two weeks of a court-ordered declaration of insolvency by an insurer, the TGA notifies all policyholders that their policies have been transferred to the TGA.

Once transferred, the TGA for life and health continues to pay benefits and prepares the policies for bulk sale, Boles said. The association has the right to liquidate the policies if a buyer can’t be found, but Boles said that has happened just once in his 25 years with the association.

"The bulk transfer is the most preferred choice, and we almost always find a safe company for the policies," he said. "The whole intent is for us to protect the contractual provisions."

Consumers should be aware that the TGA insures policies only up to certain limits.

For example, an annuity is protected up to $100,000 per insured person, similar to the FDIC’s bank account limit.

Amounts above that limit may or may not be honored by the insurance company that takes over your policy, and consumers could end up in a line of creditors during the sale of the original insurer’s assets for the overage amount, Boles said.

So just like with FDIC deposit insurance, consumers in danger of investing beyond the insured limit should consider opening multiple annuity accounts with different companies.

The property and casualty TGA operates differently, said Steve Durish, special projects director.

The association continues to pay auto and house policy claims and workers’ compensation payments up to the coverage limits, but doesn’t sell the policies to a healthy insurer. Ultimately, the consumer has to find new coverage.

Both TGAs are allowed to assess healthy insurers in the state for the costs of the protection coverage in the event of a company failure, as well as collect funds from the liquidation of assets of the failed company.

Key to protection for all policies under both TGAs is for consumers to continue paying their premiums on their policies during the process, Boles said.

"You’re not paying premiums to your insurance company — it’s not there anymore," he said. "You’re paying premiums to continue your policy until we sell it to a healthy company."

Teresa McUsic’s column appears Fridays.

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