Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

"Ask any veteran stock analyst what industry group draws the smartest but quirkiest colleagues," strategist Nicholas Colas of ConvergEx Group wrote in a note to clients earlier this month, "and you’ll probably hear one sector more than any other: 'Insurance.' "

It's almost as if Citigroup analyst Todd Bault and his colleagues set out over the holiday weekend to prove Colas right. The result is a 17-page research report laying out the case for why Google's parent, Alphabet, and a partner investment bank should buy American International Group, the poster company for the financial crisis. AIG management is currently trying to fight off a fierce attack by heavyweight activist investors Carl Icahn and John Paulson, who want to break up the insurer, and coming up with alternative scenarios is becoming a bit of a parlor game for analysts who follow the stock.

AIG's shares are up 27% over the past five years, compared with a 40% gain for S&P 500 insurers.
Source: Bloomberg data.

First, the obvious: Bault is right in conceding that his plan for Alphabet to buy AIG and turn it into an insurance-innovation laboratory is a "low probability event," as Bloomberg's Sonali Basak reported.  In other words, it's probably not going to happen. But a more interesting question is whether he's right about another assertion made in the report: "This idea is audacious, but that doesn't mean it's wrong." 

The notion brings up a giant elephant in the room when it comes to the financial-technology revolution: Insurance has largely avoided the type of disruption that is shaking up everything from trading to investment management and advisory, to mortgages and payments.   

Chronic Discount Syndrome
AIG has traded below book value, or the value of assets minus liabilities, for years.
Source: Bloomberg data

Two of the reasons, according to the Citigroup analysts, are that insurance contracts do not trade in liquid markets and the industry is hard to automate because it has been built on computer systems that are unique to each company. That makes it tough for a young startup firm to enter the fray. The business is mostly about crunching vast reams of data, which is difficult for a startup to come by.

Yet, as Bault points out, consider the marriage of AIG and Google: AIG has decades of historical data on almost every line of insurance, and what company is better than Google at using Big Data to solve difficult problems?  

Throw in the fact that AIG is trading for little more than two-thirds of book value, a discount the analysts say may be chalked up at least in part to a lack of confidence in management's strategy, and this would offer Google a chance to dive head first into the insurance industry on the cheap. Plus, one can't help but remember all the comparisons between Alphabet and Berkshire Hathaway that were made last year when Google announced plans to restructure its varied businesses under the Alphabet holding company. 

Still, even though Alphabet has $78.2 billion in cash and equivalents on its books and a AA credit rating, making an offer for a company with an enterprise value of more than $100 billion would not be a small investment. Most of the company's bets on nonadvertising "moonshot" business ideas  are more akin to scattering single chips across the roulette table than pushing the whole stack onto one square.

So this idea may be too audacious to ever exist anywhere but in an analysts' report. Still,  it's doubtful that Bault is the only one scheming to bring technological disruption to insurance. The fintech revolution is bound to come to a battlefield in that industry one day soon. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Michael P. Regan in New York at

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Daniel Niemi at