“We are being inundated by a tsunami of fraudulent claims,” said Walter Neff, VP Adjustments for AIG. “Our trust is being betrayed by desperate, unscrupulous insurees. Forget the bankers, brokers, auto makers and porn merchants. Our boat is the leakiest. We need a bailout now.” 

Neff told attendees at the annual Assurers and Actuaries convention that failed business people, destitute mortgage holders and disgraced CEO’s had put an “intolerable” burden on the system. 

“We’re optimists, we make our money betting against disaster,” he said. “We trusted our clients to stay in their homes, keep their jobs and outlive their insurance policies. And they let us down.”

Since the recession  began three years ago, “insurees have been wreaking havoc on our actuarial tables,” Neff said.

It began with the fires, he said. In normal times there is a very slight probability that a house will be destroyed by fire so the insurers could fatten the homeowner’s premium with extra fire protection. 

But when the subprime meltdown began the companies saw an incredible upsurge in fire claims.

“Houses were going up in flames all over the country,” Neff said. “We had to hire extra adjusters to keep up with claims.”

After a few investigations uncovered arson, the companies realized that people who couldn’t keep up with their mortgages were burning down their dream houses to squeeze  out one last bit of equity. “We could nail the few who had moved valuables and furniture before the fire,” Neff  said, “but it was hard to prove a case against the ones who were willing to let heirlooms and family keepsakes be consumed. These small domestic tragedies added up to a tremendous loss for us.”

Small businesses were the next flag. “Fire, theft, flood, spoiled shipments, vandalism,” Neff said. “I’m talking about family businesses that had been around for generations and were now ruined…Respectable people whose only recourse was fraud.”

Corporate insurance had been a cash cow for years. “We sold hundreds of millions of liability protection,” Neff said. 

“But suddenly, companies were shedding CEO’s like a sheepdog sheds hair. Faced with illegal dismissal suits they were  opening those golden parachutes. And we were providing the soft landing.”

“Corporate officers whose contracts indemnified them against legal action were getting sued and indicted left and right,” Neff said. “And all those expensive lawyers were on us.”

And now comes a new and potentially lethal wrinkle, which Neff says “could sink the industry”–Tycoon suicides.

In the last few months four prominent and–according to Neff–heavily insured executives have killed themselves. Investment banker Thierry Magon de La Villehuchet, who lost $1.4 billion of his  clients money in the Madoff scandal slit his wrists in his midtown Manhattan office. German billionaire Adolf Merckle, ranked as the 92nd. richest man in the world and often described as Europe’s Warren Buffet, took a $600 million loss when he sold Volkswagen short. He wrote a suicide note and lay down on the railroad tracks about 300 yards from his home.  In September London financier Kirk Stephenson, CEO of struggling private equity firm Olivant Partners, stepped in front of a railroad train going 100 mph. Last week Chicago real estate mogul Stephen Good was discovered in his car, a bullet wound in his head.

“These were devoted family men,” Neff said. “The only liquid asset they had left was an insurance policy.  It’s possible that they killed themselves to leave some cash for their heirs…”

All insurance policies contain a clause that cancels payment if the insured commits suicide in the first two years the policy is in force.  “Our actuarial tables showed no significant incidence of suicide after the cut off date, so we felt safe with that clause,” Neff said. 

But now the actuaries have determined that executive suicides could become a copycat phenomenon. Agents have been calling clients seeking to rewrite their policies. 

“It’s tricky,” Neff said. “Some of these guys are in bad shape. We don’t want to give them any ideas.”

Companies have been talking about an industry-wide agreement to change the terms of the standard policy to  forbid suicide entirely.

“That probably won’t work, either,” Neff said. “Would you buy a policy that doesn’t let you kill yourself in forty or fifty years if you get a terminal disease or are just tired being old?”

Most policies have a clause which pays double for accidental death. “That was a good deal when only 4.5% of deaths were accidental,” Neff said. But now he  is afraid resourceful execs will stage their deaths to look accidental. “We’re watching out for scuttled yachts, totaled Ferraris, crashed private planes,” Neff said. “We’re on alert for death by salmonella, botulism, the ebola virus…”

Lobbyists have been put to work in all the major capitals seeking a bailout. “There are thousands of young, healthy men in the prime of life, who qualified for  billions of dollars of life insurance,” Neff said. “With more companies going bankrupt, more dismissals and indictments we could have an epidemic of dead executives on our hands.”