NU Online News Service, Oct. 19, 2004/By Jim Connolly and Arthur D. Postal
Life and health insurers continue to be drawn into the investigation launched by New York Attorney General Eliot Spitzer into the practices of insurance brokers.[@@]
The Attorney General’s office is investigating the practice of how brokers award clients’ contracts to insurance companies and whether bids are legitimate and if they are, whether they are being adequately considered.
Life insurers who participate in the group market and health insurers are also being scrutinized, along with insurers such as American International Group, New York and ACE, Ltd., Hamilton, Bermuda, who provide commercial insurance. Brokerage firms, including Marsh & McLennan, New York, and AON, Chicago, are also part of the investigation.
At press time, the price of stocks in the insurance sector continued to be heavily hit by investors concerned with the long-term implications of the investigation. Between October 13 and Oct. 18, the Bear Stearns & Co. Life Index fell 5.3%.
On Oct. 19, companies including MetLife, Inc., New York; and UnumProvident Corporation, Chattanooga, Tenn., said that they have received requests for information from the Attorney General’s office.
MetLife says that given its size and position in the group marketplace, it is among a number of companies receiving inquiries from the Attorney General’s office. It says that it conducts business directly and through brokers and consultants, and pays both commissions and other contingent payments. Contingent payments totaled approximately $25 million in 2003. Additionally, Met Life says, third parties also may be compensated for administrative services that they perform.
The company says that it advised Spitzer’s office on Oct. 1, 2004 that MetLife was not aware of any instance in which it or any other company had provided a “fictitious” quote.
UnumProvident President and CEO, Tom Watjen, stated that “In addition to full disclosure, we will further review our compensation policies and procedures to be sure that we appropriately compensate our brokers but do not create any actual or perceived conflict between the broker and the customer.”
As the review at UnumProvident continues, Watjen said, it will not enter into any new compensation agreements until it is completed.
Companies including CIGNA, Philadelphia; MetLife; Aetna, Inc., Hartford, Conn.; and UnumProvident have stated previously in filings with the Securities and Exchange Commission that they have received requests from the Attorney General’s office for information.
CIGNA reported in June that it had received requests for information and additional requests pertaining to relationships with brokers and consultants have been received, according to Wendell Potter, a CIGNA spokesman.
A spokesman for Prudential Financial, Newark, N.J., declined to comment for the story.
Principal Financial Corp., Des Moines, Iowa, has not received any subpoenas, according to Eva Quinn, a Principal spokesperson. Aetna, Hartford, Conn., “received a follow-on request from the New York Attorney General in September,” says David Carter, an Aetna spokesman. “This is related to an initial inquiry made during the summer. Aetna is cooperating fully with the request.”
At press time, calls to Jefferson Pilot Corporation, Greensboro, N.C., had not been returned.
Bear Stearns analyst Saul Martinez says that it is too early to make informed decisions about the impact on life insurers. “Headline risk” could weigh on share prices and affect the growth and profitability of some insurers, according to Martinez. However, he continues, in some cases, it has also led to sell-offs that are “overdone.”
The National Association of Insurance and Financial Advisors (NAIFA) released the following statement in response to reports of bid rigging by insurance brokers:
“NAIFA condemns any illegal or unethical practices if they have indeed taken place, and encourages swift and appropriate punishment. We are deeply disappointed by the reports. If true, these brokers clearly were not acting in the best interests of their clients. Steering unsuspecting clients to certain insurers for their own profit is reprehensible and fundamentally contrary to the standards of most ethical and law-abiding brokers.
“Insurance companies, their representatives and independent brokers must work to restore confidence in the industry and the many people in it who put the interests of their clients before anything else.”