American International Group is formalizing a promise to begin paying major commercial property claims within seven days.
After a large loss, when the coverage is clear and there is an agreement on the scope of the property damage and costs incurred, AIG will pay up to 50% of the loss including property damage, clean-up costs and extra expenses within seven days, Dave Crowe, global head of commercial property claims for AIG, said.
Large losses are considered to be $3 million or greater.
"We always looked to get advances out quickly, but never put a time frame on it before," Crowe said. AIG agreed to formalize the seven-day promise with Marsh in January, and has a similar agreement in place with Willis, Crowe said. "We intend to structure similar agreements with all of our broking partners over time," he said.
AIG began stepping up giving insureds advances for claims after the major catastrophes in 2004 and 2005, Crowe said. "It's critical for insureds to get money out in advance to support their cash flow," he said.
After Hurricane Sandy, AIG had distributed $175 million in the first 30 days, and more than $750 million to date, he said.
Business interruption is not included in the seven-day agreement.
There's not a standard time for carriers to begin paying commercial claims, said Dan Weedin, a Seattle insurance consultant and president of Toro Consulting Inc.
"But what is standard is insurance companies know that if you get a claim, the longer it goes, the more you'll have to pay," Weedin said. "The longer a claim is out, more bad things can happen."
From a client perspective, promising to begin to pay large property losses within seven days "helps in the goodwill department," Weedin said. "It will enhance AIG's reputation."
Jay Straughan, vice president of claims for Enservio, a claims software and services company, said most companies have an internal time target to make claims payments, although regulators can also impose deadlines by setting fair claims standards.
States have different fair claims practices standards with different requirements. Many policies have some language in the loss payment provisions that discusses when they will make payment or declare their intentions with regard to payment, Straughan said.
What is known and very well documented by JD Power and Associates is that the time to settle a claim has a strong impact on satisfaction with the claims experience. Delay the claim, lose the customer, Straughan said in an email.
Last month, AIG posted a $4 billion fourth-quarter net loss, and said it was bracing to be designated as a nonbank systemically important financial institution, or SIFI.
AIG's rated insurance companies currently have Best's Financial Strength Ratings of A (Excellent).
On the afternoon of March 13, shares of AIG were trading at $38.89, down 0.56% from the previous close.