All news about AIG is about how it came close to bankruptcy, how the US Treasury had to bail it out to become the majority shareholder at 79.9% and how the vultures are circling to pick up the good bits in case the US Government decide to hold a ‘yard sale’.

From anecdotal evidence in the market place, I wonder whether AIG will continue to remain in its current form given that, even with the US bail out, the market seems to be pretty wobbly over AIG. One Syndicate I spoke to said that they were doubtful they would write to their capacity in 2008, but now having picked up ex AIG business due to the policy holders losing confidence, it is now likely they will close their doors before the end of the year. A reinsurance buyer said that AIG were no longer acceptable security. One company even said they were unhappy about having AIG as a following coinsurer on their lead business!

This potential distribution of AIG business got me to wondering how the market could absorb this business without also absorbing all or most of the staff. The answer is almost certainly that it will not be able to. This is because current insurance market practices, as we all know, are inefficient and not scaleable without scaling the staff too.

At the risk of repetition, if more business were transacted electronically then it would clearly allow absorption of this new business by other market practitioners far more easily.

True, it is not often that such a large quantity of business ‘drops’ into the marketplace, but companies do come and go and this situation is not entirely unique.

The costs of processing the book of business that companies currently have is always under consideration and is always seen as too high. The ability to scale up the business rapidly in response to events such as the AIG situation would seem to make finding ways to process the business more efficiently even more compelling.