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Business as usual for State Farm
By Karen Hansen
khansen@pantagraph.com
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BLOOMINGTON -- The massive $85 billion federal bailout of American International Group should have little effect on rates people pay for home and auto insurance, an industry expert said Wednesday.

The two-year emergency loan to AIG, which gives the federal government a nearly 80 percent stake in the global insurance giant, is designed to foster a climate of business as usual in the insurance industry, said Robert Hartwig, president and chief economist of the Insurance Information Institute in Washington, D.C.

“The idea is that companies are operating as normal,” said Hartwig, with the industry and its rates continuing to be monitored at the state level.

State Farm Insurance Cos. spokesman Jeff McCollum agreed the Bloomington-based insurer anticipates no effect on policyholders’ rates from the government intervention, though the company will monitor the situation.

Hartwig also noted the situation that caused AIG’s downfall was different from anything that exists at a company like State Farm. AIG is an international insurer that operates in 130 countries; its biggest problems were caused by risky mortgage-related investments and insurance.

“The core of our insurance and our banking operations remains solid,” said McCollum, noting the mutual company is also not publicly traded. “We have not engaged in the risky sub-prime lending practices of some financial institutions, and the way we are structured to serve our customers’ insurance needs bears no resemblance to AIG.” 

Hartwig also noted distinctions between the AIG situation and another recent federal bailout of mortgage giants Fannie Mae and Freddie Mac. Unlike the two mortgage giants, which hold or guarantee about half of the nation’s mortgage debt, insurance risks are spread among 2,600 property/casualty carriers in the U.S.

“Half of the insurance market is not funneled through two entities the way the mortgage market was,” said Hartwig.

Take a look
A broker takes a break in front of the New York Stock Exchange ticker displaying the numbers for AIG, Tuesday, Sept. 16, 2008. U.S. stocks headed for a mixed open Tuesday, a day after Wall Street's worst day in years, as nervous investors awaited a decision from the Federal Reserve on interest rates. (AP Photo/Mary Altaffer)
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Reader comments on this story - 2 total

Note: All views and opinions expressed in reader comments are solely those of the individual submitting the comment, and not those of the Pantagraph or its staff.

dick daley wrote on Sep 18, 2008 3:26 PM:

" The spokesman for SF is not being honest when he says they are not involved in sub prime lending. All instittutional investors buy secured pools of mortgage loans. State Farm Bank is a sub prime lender abd investor. I've sold pooled loans that included sub prime loans to SF. Trust me, he's not telling the truth. "

0722 wrote on Sep 18, 2008 10:09 AM:

" Welcome to socialist America!! Land of the free, home of the brave. Go ahead and start a business all you entrepneurs. If you make some poor business or ethical decisions, the government will bail you out. America: Bring me your hungry, your tired, your poor...........the government will feed you. "
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