Citi: Google Should Buy AIG And Make It A 'Fintech Lab'

• American International Group Inc AIG shares have lost 15 percent since January 4, while shares of Alphabet Inc GOOGL are down 7 percent.
• Citi’s Todd Bault mentioned that AIG has already committed to modular disclosure and its stock is currently trading 30 percent below its book value.
• Bault believes that AIG’s woes could be resolved by its takeover by a technology firm like Google which can then convert it into an insurance FinTech laboratory.

Analyst Todd Bault mentioned that AIG’s underperformance on the profitability front remains a major cause for concern. Management has rejected repeated calls for a breakup of its business.

Bault believes that the interconnected and hard to automate nature of the insurance industry will make it difficult for the technology industry to disrupt the former. He commented that the “bespoke, interconnected, and hard to automate nature has been a hindrance to innovation for decades, and despite progress remains an issue.”

Modular finance, a unifying theme coined by Oliver Wyman, enables technology to assemble the components of complex financial products, forcing the finance firms to be the best of breed for each product and lowering the advantage of being full service.

The concept of modularity in insurance can address complaints of “complexity and opaqueness,” the analyst added.

“While it is clear that P&C insurance fails modularity in several ways (e.g. business is sold in programs, not lines of business), AIG superficially seem modular (Life vs. P&C), but has an extensive history of interconnectedness that is a bigger problem than it seems,” the Citi report noted.

Bault believes that the idea of a tech firm like Google and an investment bank buying AIG and turning it into an insurance FinTech laboratory will have great benefits, not only for investors and the insurance industry, but also for society by making insurance a better product.

Although the idea is audacious, it is not wrong and it may be what AIG and the insurance industry needs, the analyst stated.