A Whole New Meaning

The bidding process is fairly competitive and while it is possible there could be manipulation, the process is more “transparent,” he adds.

Depending on the results of the inquiry, Martinez says, there is the potential for brand damage, although he adds that for companies with very large presences in the group market, there would have to be “pretty egregious behavior.”

If the investigations under way extend beyond group benefits and look at life insurance products, in general, then potentially products such as variable annuities and transactions such as 1035 exchanges could be examined, Martinez says.

Andrew Kligerman, an analyst with UBS, New York, says the existing brokering process for group benefits could provide opportunities for abuse or wrongdoing. Potential abuses, he says, include: override arrangements; a volume-based payment to the broker; quid pro quo behavior that could motivate business to select underwriters; providing an incumbent insurance company with an idea of what price, terms and service levels need to be to win renewal; and, discretion over what carrier is given a last bid, a bid that is usually selected.

–Jim Connolly

Reproduced from National Underwriter Edition, October 21, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.