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Blumenthal And Ario Discuss Brokerage Fees Probe

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Connecticut Attorney General Richard Blumenthal is requesting information from 20 insurers in connection with an investigation of price-fixing and bid rigging in the insurance brokerage market.[@@]

Letters of inquiry were issued in July and subpoenas were issued in the last couple of days to property-casualty, health, auto, and employee benefits insurers, the attorney general said in an interview with National Underwriter. Blumenthal says that the investigation is “active and ongoing.” He declined comment on potential action until the investigation is concluded. There may well be coordination of work with other Attorneys General, he adds.

New York Attorney General Eliot Spitzer launched an investigation into insurance brokerage practices earlier this year and announced a civil suit against Marsh & McLennan Cos., a broker based in New York, on Oct. 14. The civil complaint also names insurance companies including ACE; Hamilton, Bermuda; American International Group, New York; The Hartford, Hartford, Conn.; and Munich American Risk Partners, a unit of Munich Re in Princeton, N.J.

The investigation and suit are also prompting action from state insurance regulators. Regulators have been seeking to strengthen regulation in their individual states, and now the National Association of Insurance Commissioners, Kansas City, Mo., is also initiating a coordinated response, according to Joel Ario, Oregon insurance administrator and NAIC vice president.

Ario says that one of the steps that regulators are taking is to see what existing authority they have to prevent abuses. For instance, he says that in Oregon, a proposed regulation was filed in mid-October and could be finalized in late November 2004 to ensure adequate disclosure of brokerage fees and any compensation from insurers. The pending regulation may be strengthened even further, he adds.

On Oct. 20, California Insurance Commissioner John Garamendi proposed regulations to prevent brokerage compensation abuses. Civil action is being considered by the department and will probably be filed soon, according to a department spokesman. (See related Web article.)

Regulators at the NAIC will start an “aggressive fact-finding effort” to determine what problems exist and will designate a representative in each department to field any inquiries and gather information from the public, he adds. Regulators will be coordinating their efforts with the attorney general’s office, Ario says.

Additionally, the NAIC will create a committee of no more than 5 states to oversee state regulatory action.

“It is my guess that there will be some [market conduct] exams” as a result of this new coordinated effort, Ario says. However, he declined to name specific companies that could be targeted.

Most states have some applicable laws and regulations that can be used now to help stop any abuses, Ario says. While any allegations of bid-rigging would probably go beyond insurance codes, fees and commissions paid are under the purview of state insurance regulation, he says.

States have been addressing the issue of commissions and fees and potential conflicts of interest for the last couple of years, as witnessed by a New York insurance department bulletin,. But the issue of bid-rigging is a new one for state insurance regulators, according to Ario. “To my knowledge, this is quite new.”