Insurance companies’ ads are usuallyintended to make you feel secure,comfortable, and safe. They tell youthat the companies have been in busi-

ness for a long time, are in sound financialcondition, and have always been there forpolicyholders. Insurance companies wantyou to think that they care about their pol-icyholders—you, for example. Here areheadlines from typical ads: “Strength.Protection. Vigilance.” (Sentry); “Thestrength to cover business risks world-wide” (XL); “I love knowing that I’vehelped someone.” (UnumProvident);“We’re here today. We’ll be here tomor-row.” (Zurich).

One of the most successful companies,AIG, often does something different. Itruns ads that make you feel uncomfort-able, worried, frightened. Its ads raisegnawing questions about insolvency, lia-bility, new risks, lack of coverage, andclaims not getting paid. The ads arouseanxiety and, more importantly, fear.

Before we discuss AIG’s ads, let usbriefly consider Herschell GordonLewis’s work. In 1960, when he was mak-ing TV commercials, writing ad copy, andteaching night classes at RooseveltUniversity, Lewis figured he could earnmoney in the movie business. So he madean ultra-low-budget, feature-length“nudie” film, Prime Time, which by today’sstandards is tame and tedious. But it mademoney, so he cranked out more of thesame: Daughter of the Sun, Nature’sPlaymates, and Goldilocks and the ThreeBares. In capitalism, success spurs com-petition. Almost anyone with a cameracould make Grade-Z movies that were asgood (or bad), and many did. By 1963,Lewis had to find a new gimmick. Whenhe came up with the idea for his next

movie, he didn’t know he was inventing agenre that would become known as the“splatter” film.

Today, low-budget movies can gostraight to video or cable. Lewis didn’thave that option. “We had to go in to seethese theater owners…and convince themto throw out Ben Hur and The TenCommandments and throw in Blood Feast,”he said on the cable-TV show Reel WildCinema.

Lewis’s Blood Feast was shot in twodays, in color rather than in black-and-white. (It was billed as “a nightmare ofpure gore in BLOOD COLOR.”) It wasschlocky, stupid, gross, and very prof-itable. Over the next eight years, the“godfather of gore” churned out twenty-five movies, including Two ThousandManiacs!, Color Me Blood Red, A Taste ofBlood, The Wizard of Gore, and The GoreGore Girls. By 1973, however, Hollywood

was making gorier films than Lewis was(The Exorcist, for example). Lewis left“showbiz” and went into advertising anddirect marketing. He also wrote more thantwenty books on these subjects.

We first came across Lewis in the1980s when we read Direct Mail Copy ThatSells! The title is quintessential Lewis—blunt but compelling. Surprisingly, thebook is good. It’s written in a clear, genialstyle and is filled with hundreds of exam-ples of smart (and foolish) marketing.Lewis said that we were living in an “ageof skepticism…in which nobody believesanybody.” You needed to motivate peopleto buy your product or service, but the oldmotivators—sex and status—were out-dated. Fear, according to Lewis, had be-come the most powerful motivator: “Fearcuts through the layers of fat around thereader’s brain.”

Lewis likes advertising copy that’s

SCHIFF’S

SCHIFF’S INSURANCE OBSERVER • 300 CENTRAL PARK WEST, NEW YORK, NY 10024 • (212) 724-2000 • DAV I D@IN S U R A N C EOB S E RV E R.C O M

March 14, 2005Volume 17 • Number 4 I N S U R A N C E O B S E R V E R

The world’s most dangerous insurance publicationSM

AIG is a MasterHow to Sell Fear and Influence People

“Speaking of your mother, how do you feel about Eliot Spitzer?”

honest and specific. Cleverness for thesake of cleverness isn’t his style, nor issubtlety. If he’s writing an ad for a dietproduct he won’t say, “Are you heavierthan you want to be?” He’ll say, “BehindYour Back—Do They Call You Fatso?”

When we talked with Lewis recently,he said that fear is still a great motivator,but it is “very difficult to generate” intoday’s marketplace. The old type of fear(“Isn’t your family’s security worth $1 aweek?”) doesn’t work anymore: “Peopleare beyond that point.”

Which brings us back to AIG, whichhas done well for itself by instilling fear. Itmakes you worry about the financialstrength of insurance companies thataren’t AIG. Its ads, for example, have im-

plied that carriers rated “A-” are likely tofail (AIG is rated “AAA”).

Here are headlines from two recentAIG ads:

“Before Facing a Casualty Crisis, Be SureYour Insurance Provider Won’t Be aCasualty Itself.”

“Does Your Company Unknowingly MakeRisky Investments? It Could if You Buy‘Junk Insurance’ from the Wrong Carrier.”

These ads quickly catch the reader’sattention and create fear. Then they doexactly what an ad is supposed to do—provide a solution. AIG is a master atusing fear to sell Directors and Officers li-

ability insurance (D&O), which it prettymuch invented. In a 1997 interview withBusiness Insurance’s Gavin Souter, JosephDeAlessandro, a longtime AIG senior ex-ecutive, discussed the early days (the late1960s) of D&O:

At the time that I started getting involved inD&O, there was a major question as to whetheror not it was a legal coverage, whether or not acorporation could pay the premium on behalfof its directors and officers.

We formed a group to influence the legisla-tors to suggest to them that they make it possi-ble for corporations to buy it, because in essenceD&O protects the shareholders’ interests. Andwe were very influential in getting theDelaware statute to be approved in 1967, al-lowing corporations to buy D&O insurance andalso to put provisions in their bylaws to enablethe company to indemnify the directors and of-ficers for certain acts that would not be consid-ered criminal or self-dealing.

D&O was initially a hard sell; compa-nies didn’t know they needed it. In 1968,the American Home Assurance Company,then 51.4%-owned by AIG, ran a full-pagead in The Wall Street Journal. The ad showsa small picture of a serious man, perhapsin his mid-fifties. He is, presumably, theaverage American shareholder, an every-man. The quote above his picture wasenough to shock readers: “I just might sueevery company director reading this news-paper.”

The ad continues: “If you are a direc-tor of a major company, I’ve got you whereI want you. At my mercy. What can I sueyou for? What can’t I sue you for!”

The ad, written in the first person, saysthat this man can sue you for conflicts ofinterest, for missing a board meeting, orbecause he thinks your salary is too high.“I can’t begin to list all the reasons I cansue you for,” the man says.

Reading the ad today, one is struck byits excess and opportunism. For example,the man says that directors can be sued for“sending [shareholders] a dividend pay-ment.” That, of course, is unlikely.

The ad is also notable for its hostilityto shareholders, who after all, own the com-panies on whose boards directors serve. “Ican blame and sue you,” says the man inthe ad, “for a misstatement in your com-pany’s financial report—or should I sayour company.” It’s probably true that fortyyears ago directors had a particularly pa-tronizing attitude towards shareholders,and the ad milks that attitude.

The ad continues. “And here’s the

SCHIFF’S INSURANCE OBSERVER ~ (212) 724-2000 MARCH 14, 2005 2

AIG’s 1968 ad in “The Wall Street Journal”

SCHIFF’S INSURANCE OBSERVER ~ (212) 724-2000 MARCH 14, 2005 3

saddest part. I’m not alone. There are 24million other people out here just like me.There are 24 million stockholders in theUnited States and that’s 24 million poten-tial stockholder suits.”

By this point, the ad has identified anenemy—every shareholder in America—and created the fear that these “24 mil-lion” strong are on a litigation rampage.

The ad then makes a 180-degree turn.The man who has just told you that he“might sue every company director read-ing this newspaper,” offers you assistance.“There is a company that can help you,”he says. “American Home AssuranceCompany.” He says that it has somethingcalled “Directors and Officers Liability

Insurance,” and tells you that they have abooklet all about it. He then tells you to“Send for [this booklet] and talk it overwith your insurance agent and broker. Heand American Home Assurance Companyare good friends to have when you have 24 million potential enemies.”

The ad generated a big response.More importantly, it helped create a keyline of business for AIG, one that wouldgenerate billions of dollars of premiumsover the years. (Remember: AIG was rel-atively small in 1968. Its insurance com-panies’ gross written premiums were $333 million, of which AIG’s “share”—adjusted for minority interests—wasabout half.) But D&O’s significance to

AIG was greater than the big underwritingprofits it would generate. “It became avery important production tool,” recalledDeAlessandro in 1997. “By the 1970s, ifyou wrote the D&O you could demandthe balance of the account. It was a hookand worked very successfully. You couldcount the number of companies thatwrote D&O on the fingers of one handand have two fingers left over. So wecould say we would be happy to write yourD&O and we would like to have the op-portunity to write the balance of yourbusiness, and we did.”

AIG is now the largest writer of com-mercial lines in America. It’s the leadD&O underwriter for sixty-five percentof the Fortune 100, with a market sharegreater than that of the next four largestD&O underwriters combined.

AIG has always been an innovator. Itconstantly comes out with new productsfor coverages that are considered risky. A1979 article in Institutional Investor quotedAIG’s CEO, Hank Greenberg: “The his-tory of our experience has shown thatwe’re much better off writing so-called‘risky business’ than the non-risky auto-mobile and homeowners insurance, whichI consider terrible…In kidnap and ransominsurance, all you read about are the kid-nappings. There are an awful lot of peoplewho aren’t kidnapped who buy our insur-ance.”

Today, D&O coverage is almost ubiq-uitous. But AIG finds ways to squeezemore premium out of it by offering a formof coverage specifically for non-employeedirectors. An ad that AIG is now runningonce again uses fear to let people knowthat they need this coverage. The head-line of that ad simply states, “IndependentBoard Members Are a Target.”

The ad follows AIG’s well-honed for-mula. A catchy phrase creates fear. Thatfear is then reinforced with a few state-ments: directors are being held to higherstandards; plaintiffs are targeting theirpersonal assets; settlement costs can ex-ceed D&O limits; and litigation costs canuse up policy limits. Then AIG offers thesolution: IDL MAX, a policy that was de-veloped “specifically for independent di-rectors.”

AIG’s website does something similar.You can log on and read about D&O. Ifyou’re a director, by the time you’ve fin-ished reading you may feel afraid—veryafraid. “Rapid changes in the D&O mar-

The world has changed for independent directors:

• They’re being held to higher standards.• Plaintiffs are targeting their personal assets.• Settlement costs can often exceed D&O insurance limits.• Litigation costs of others can bleed their company’s policy limits dry.

In response, the AIG companies have developed insurance specifically for independent directors: IDL MAX.

With more than thirty years of experience protecting corporate board members, the AIG companies are the

only large D&O providers with triple-A ratings for financial strength from the leading rating agencies.

The world has changed. Make sure the insurance coverage you provide your clients keeps up with the times.

INDEPENDENT BOARD MEMBERSARE A TARGET.

Insurance coverage provided by members of American International Group, Inc. Issuance of coverage is subject to underwriting. Please refer to the policy for a complete description of scope and limitations of coverage.

WE KNOW RISK®Call your insurance broker or contact us

at managementliability@aig.com®

SM

A current AIG ad

SCHIFF’S INSURANCE OBSERVER ~ (212) 724-2000 MARCH 14, 2005 4

ket are causing board members to con-front extraordinary personal liabilities,”says the website. “These days indepen-dent directors are more vulnerable thanever.” (The accompanying illustration isan independent-director doll stuck full ofpins. “As an independent director, yourD&O policy might not cover you,” warnsAIG’s website.

When used properly, fear is a great mo-tivator. AIG clearly knows this, but itseems that most insurance companiesdon’t—or perhaps they are unable to cre-ate ads that use fear effectively. Somecompanies may want to ask themselvesthe following question: Behind MyBack—Do They Call Me Stupid?

Editor and Writer . . . . . . . . David SchiffProduction Editor . . . . . . . . . Bill LauckForeign Correspondent . . Isaac SchwartzEditorial Associate. . . Yonathan DessalegnCopy Editor . . . . . . . . . . . . John CaumanPublisher . . . . . . . . . . . Alan ZimmermanSubscription Manager . . . . . . Pat LaBua

Editorial OfficeSchiff’s Insurance Observer300 Central Park West, Suite 4HNew York, NY 10024Phone: (212) 724-2000Fax: (434) 244-4615E-mail: David@InsuranceObserver.com Website: InsuranceObserver.com

Publishing HeadquartersSchiff’s Insurance ObserverSNL c/o Insurance Communications Co.One SNL Plaza, P.O. Box 2056Charlottesville, VA 22902Phone: (434) 977-5877Fax: (434) 984-8020E-mail: Subscriptions@InsuranceObserver.com

Annual subscriptions are $189. For questions regarding subscriptions pleasecall (434) 977-5877.

© 2005, Insurance Communications Co., LLC.All rights reserved.

Reprints and additional issues are avail-able from our publishing headquarters.

Copyright Notice and WarningIt is a violation of federal copyright law toreproduce all or part of this publication. You arenot allowed to e-mail, photocopy, fax, scan, dis-tribute, or duplicate by any other means thecontents of this publication. Violations of copy-right law can lead to damages of up to $150,000per infringement.

Insurance Communications Co. (ICC) is controlled bySchiff Publishing. SNL Financial LC is a research and pub-lishing company that focuses on banks, thrifts, real estateinvestment companies, insurance companies, energy andspecialized financial-services companies. SNL is a nonvot-ing stockholder in ICC and provides publishing services to it.

SCHIFF’SThe world’s most dangerous insurance publicationSM

I N S U R A N C E O B S E R V E R

REGISTER NOW

‘A Vast Wasteland’PRESENTING THE ANNUAL

SCHIFF’SINSURANCE CONFERENCE

Tuesday, April 12, 20058:30 am - 5:30 pm

New York City

Registration fee: $695 for subscribers

$745 for non-subscribers

Call (434) 977-5877 for more information, or reserve a place now.

sjackson@snl.comhttp://www.snlcenter.com/schiff/spring2005/intro.asp

O U R S P E A K E R S W I L L I N C L U D E :

Chris DavisPortfolio Manager, The Davis Funds

Robert DowdellCEO, Marshall & Swift/Boeckh

Andrew KaufmanPartner, Kaufman Borgeest & Ryan LLP

William KoenigSVP & Chief Actuary, Northwestern Mutual

Alice SchroederAuthor; Advisory Director, Morgan Stanley

James StoneChairman & CEO, The Plymouth Rock Corporation

David SchiffEditor, Schiff’s Insurance Observer