Skip to main content

Mine field. Battle zone. DMZ. These are but a few of the colorful terms that have been used to describe the horror that is the

American International Group

(AIG) - Get American International Group, Inc. Report

-- and its army of shell-shocked stockholders and policyholders.

But little did we know how accurate those war-zone metaphors truly were.

Were you were aware, for example, that the behemoth insurer currently handles more than 80% of insurance claims from contractors working in the battlefield through its subsidiary

AIG Iraq


Consider that this means that the great majority of civil workers who are injured in Iraq and Afghanistan are reliant on AIG for their new prosthetic leg or psychological counseling.

Now consider that sentence again.

The most recent discovery in our ongoing series dissecting the Waterloo that is AIG, it is another of the many reasons why AIG received the $180 billion bailout that it won from the government -- and why untangling its assets during the company's ongoing effort pay back that bailout has proven so problematic.

And, of course, even in the Middle East, AIG comes with baggage.

Case in point: Federal law requires all federal contractors working overseas to obtain worker's compensation insurance known as Defense Base Act insurance (DBA). For 90% of the DBA insurance required in Iraq and Afghanistan, the premiums and other terms are negotiated between the private contractors and the insurance companies. But taxpayers ultimately pay the final cost, because premiums are built into companies' contracts with the government.

AIG practically holds a monopoly over these types of claims. In 2007, the company processed nearly nine of every 10 injured-civilian claims filed in the war zone.

TheStreet Recommends

AIG Iraq is also the sole provider of workers' compensation insurance to the largest private contractor in Iraq and Afghanistan,


(KBR) - Get KBR, Inc. Report

, which has 50,000 U.S. and foreign workers.

Today the U.S. Army is investigating that deal, arguing that KBR paid "unreasonably high" premiums to AIG. KBR paid about $284 million to AIG between 2003 and 2006, but the payout from AIG is estimated to be less than $73 million, with $114 million in expenses. According to congressional investigators, that means AIG walked away with about $100 million in profits.

Indeed, AIG makes substantially more money on war zone workers' compensation insurance than it does from stateside workers' compensation policies. According to the investigation, the insurer has retained underwriting gains of just 1% since 2002 from its workers compensation insurance. In comparison, it reported underwriting gains under the DBA of 38% during the same time period.

Last week, insurance executives, injured civilians and Obama administration officials testified before a panel of the House Committee on Oversight and Government Reform about the inadequacy of the overall DBA program.

Meanwhile, the investigation into AIG's fees has been ongoing since 2007.

More articles in this series:

AIG Deconstructed: Stowe Mountain


AIG Deconstructed: Philamlife


Copyright 2009 Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.