Rep. Henry Waxman lacerated the Pentagon’s workers’ compensation program for civilian workers in Iraq and Afghanistan, saying it was a “flagrant abuse” of taxpayer dollars. He directed his wrath toward AIG and three other carriers not named in this CNN report.
From a business perspective only, and not speaking as an American citizen, if I had been an AIG underwriter I would have priced this program high in the first couple of years. From an underwriting perspective, they were going into a high-risk work zone with a lot of unknowns and no historical data. But according to the report, the carriers had been achieving 40% profits on these civilian employees for over five years. This, in an industry whose revenues declined last year and whose profit margins at home are shaky at best.
It’s fine to rip the carriers for not adjusting their rates to reflect experience. But there number of other questions should be asked, too, like: Who was minding the store? Were these costs a straight pass-through from Blackwater, Halliburton, et al.? That removes the incentive from these companies to push back on pricing. After all, the more irresponsible their purchasing practices, the more money they make.
And what about the government’s own civilian employees? Where were the Procurement Officers who are supposed to act as risk managers in this sort of situation? It seems to me a lot of people dropped the ball on this one, since it went on year after year.
Sounds like this was a classic seller’s market, and yet another story of government mismanagement. The carriers may not have been admirable corporate citizens, to say the least. But, at least in economic terms, they were ‘acting rationally.’ Too bad we can’t say the same thing about the people who were paying them. Our troops in harm’s way deserve better than to have the military budget managed so irresponsibly.
The Sentinel Effect 