American General Balks

Medicare Set-Aside Blog on August 12, 2009 | Posted by

There
have been recent reports that American General, the life insurance division of
AIG, is balking at issuing rated ages for cases they deem to be for Medicare
Set-Asides. Apparently, they have been getting too many rated age requests
without a corresponding increase in structured settlement premium. Fair enough,
issuing rated ages is a business decision and there is no doubt that the
explosive growth in MSAs has fueled an increase in rated age requests. Allstate Life Insurance Company made a similar decision years ago.

 

By
way of background, AMGEN, as they are referred to in the structured settlement
industry, used to be the industry leader in structured settlement premium with
over $1.5 billion written. With the departure of long-time industry executive J.P.
Steele, troubles at their parent company and a ratings downgrade, they are now
a shadow of their former self. Many P&C companies have removed them from
their approved list of carriers, and selling their product in today’s market
reality is a difficult proposition at best. While the financial security
concerns are largely a non-issue, the perception that AMGEN is somehow damaged
as a result to their ties with AIG is lingering.

 

However,
the tact they have taken concerning rated ages is having unintended
consequences. The message they have inadvertently sent to the P&C industry
by refusing the issue rated ages for MSA cases is that “we don’t care about
saving you money.” We all know that rated ages are one of the most
effective cost savings measures when calculating Medicare Set-Asides. By
withdrawing their support, American General is removing a source of cost
savings from their ultimate clients. This has gone over like a lead balloon at
certain P&C companies that are already skeptical of American General.

 

Furthermore,
they are putting brokers that service this exploding segment of the structured
settlement market in a difficult position. They recently sent a letter
threatening to cancel appointment of producers that obtain rated ages for the
purposes of Medicare Set-Asides. The idea, however misplaced, was to limit
rated age requests to cases where AMGEN had a reasonable chance of obtaining
the business. That is certainly a reasonable request but the way it was
delivered demonstrates a fundamental misunderstanding by AMGEN of how annuities
are utilized as part of the MSA process.

 

The
problem is that MSAs are often prepared months before a settlement offer and a
broker has no way of knowing which cases will ultimately structure. When a
broker requests that a rated age be issued for an MSA, they have no way of
knowing whether that case will ultimately settle and/or settle with a
structured settlement. However, one thing is certain. If a company refuses to
produce a rated age, they have virtually no chance of getting the business when
and if it does settle. Our internal metrics indicate approximately 20% of all
cases that include an MSA settle with a structured settlement. That is a lot of
business the beleaguered AMGEN is leaving on the table.

 

So
brokers are now faced with a choice. Either lose their appointment with AMGEN
(which a few years ago would have been career suicide. Now it is a minor
annoyance at worst and a badge of honor at best) or lose their clients by not
providing rated ages and delivering value to the settlement process. Most
brokers I know have simply chosen to completely abandon AMGEN and work with
companies that have more sensible rated age policies. (Liberty currently has the best policy by a
willingness to write any case provided certain premium goals are met. Still
others, like Symetra which has excellent rates and similar ratings to AMGEN are
just happy to get a shot at the business and provide excellent customer
service.)

 

With
liability MSAs on the horizon, AMGEN has, in our estimation, made a serious
strategic blunder. They have alienated certain P&C clients, they have
angered many of the younger high producing structured settlement brokers, and
they are ceding one of the most important new markets to other life insurance
companies.

 

The
problem is that AMGEN behaves as though they are still the 800 pound gorilla of
the structured settlement industry. They should take their cue from Prudential
(the new market leader) who in the past had a similar attitude. When PRU lost
their A+ rating, they were forced to improve their products and customer
service. The result was the emergence of a stronger and tougher competitor when
they regained their ratings. We will see if the AMGEN structured settlement
program can last that long. I have my doubts but am eternally hopeful.

 

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