If you listen closely, you should be able to hear the very beginning of a collective intake of breath as the industry wondersand even more to the point, starts to fearwhere the Spitzer-inspired investigations of life and health insurers may end up.

This fear would seem to be well-grounded since Spitzer has become the scourge of the financial services business, a veritable 21st century Savonarola.

Spitzer, of course, is Eliot Spitzer, New York State Attorney General, whose office has spurred investigations of the mutual fund industry and the compensation package of the former head of the New York Stock Exchange, among other things. More recently he went after big broker Marsh Inc. over contingent fees and bid-rigging in its role as a go-between for insurance companies and corporate insurance buyers.

Spitzer is a very busy man and it is widely assumed that he will be running for governor of New York state in 2006. If he keeps up this pace of investigational crusade (and its a good bet he will), by the time of his gubernatorial race his celebrity will be such that he will be known by only one nameSpitzerlike Cher or Sting or Madonna.

Whatever his ultimate ambitions may be, Spitzer is taking a very stiff broom to the financial services business. The man has no hesitation about playing hardball. Witness the way he got the Marsh board to force out Jeffrey Greenberg as chief executive with the threatimplied or otherwiseof bringing a criminal suit against the company unless Greenberg left.

It proves the old adage (OK, maybe not so old) that hardball gets headlines.

In the course of his many investigations, Spitzer has uncovered some extremely slimy dealings, but none more slimy than the rigged bids that are allegedly documented in e-mails of some Marsh employees. The language in these documents is so brazen and the attitude so arrogant that from a distance there is a great deal of vicarious satisfaction in seeing the malefactors brought down and brought to justice.

Unfortunately, many honest employees of Marsh are going to have to pick up the tab for the wrongdoing at the company. Indeed, this already has occurred in two ways that have become an achingly familiar pattern in American business in the last few years.

First, the retirement savings of these employeesmuch of which is tied up in company stock either voluntarily or involuntarilytakes an immense hit as outside investors gauge the damage to the companys prospects and head for the doors. If youre thinking Enron here, yes, it is the same scenario.

Second, droves of employees are laid off as the companys earnings plummet. This is exactly what happened at Marsh last week as the company said it would give some 3,000 employees their pink slips.

Spitzers investigations seem to have set off a chain reaction, with other regulators and government officials getting in the act. Theres Connecticut Attorney General Richard Blumenthal who has subpoenaed information from some 35 companies doing business in his state. And then California regulators have weighed in with their own probes.

No one knows at this point where all these investigations are going to lead in the life and health business. Honest companies, of course, should have nothing to fear from such investigations. And though I may be accused of being Candide, Im convinced that the overwhelming majority of life and health companies are honest and dont countenance anything like the dishonest dealings that Marsh allegedly institutionalized.

But even honest companies can have their apprehensions about limited investigations turning into fishing expeditions.

Spitzer has set mighty forces in motion. As the industry holds its breath, the question is who will reap the whirlwind?

Steve Piontek

Editor-in-Chief


Reproduced from National Underwriter Edition, November 11, 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.