Blumenthal: Probe Growing In Size And Scope

Washington

Connecticut Attorney General Richard Blumenthal told a Senate subcommittee last week that his investigation into wrongdoing in the insurance brokerage industry, primarily dealing with the life and health industry, has “expanded significantly in size and scopeand continues to broaden and escalate.”

Even though the investigation is in its early stages, Blumenthal said, “We have seen evidence of illegal and improper anti-consumer conduct, ranging from bid-rigging to fraudulent, concealed commissions and secret payoffs to flagrant conflicts of interestall stifling competition and inflating insurance costs to consumers.”

Blumenthal said that preempting state insurance regulation as a means of dealing with the industrys problems is inappropriate. “Rather than rely on federal regulation, state insurance laws should be reinvigorated and reinventedmade robust and real agents of reform.”

Blumenthal said these laws “should establish an unequivocal, explicit fiduciary duty between the insurance broker and the consumer, require clear and conspicuous disclosure of fees and duties owed to consumers, enable consumers to pay for broker advice that is truly independent of insurance company compensation, and mandate transparent bid systems according consumers informed choices free from insurance company influence.”

Alluding to testimony by California Insurance Commissioner John Garamendi, Blumenthal said he was “encouraged” by the “active interest of other states, which we are enlisting and organizing into a strong multi-state response to these serious and disturbing improprieties.”

The scale and magnitude of corrupt practices and unethical conduct “continue to mount,” Blumenthal said, and increasing evidence of such practices, as he is finding in documents and through other sources, “means that much more remains to be done.”

He said cooperation with the investigation has varied, then added: “Make no mistake: There will be a barrage of well-aimed, powerful state enforcement actions. They will be pursued promptlyand aggressively. They will not be diverted by voluntary industry changes in business practices. They will aim to uncover wrongdoing and recover ill-gotten gains for consumersand also reform state regulation with new tighter laws and tougher enforcement.”

Throwing down the gauntlet against federal regulation, Blumenthal said, “This state enforcement and reform effort cannot be derailed or delayed by federal intervention and intrusion. We have a right and responsibility to enforce state antitrust laws. We will seek strong sanctions and scrutiny. I say with great respect to the United States Congress, and particularly to the distinguished members of this panel: We fervently hope for cooperation and will fiercely fight preemption.”

But Blumenthal warned that “state laxity and inaction will invite federal intervention. State insurance commissioners must heed the call for reform and act quickly to restore consumer confidence.”

He charged that “too many” state insurance commissioners “have been industry captives,” adding that “some insurance commissioners have responded aggressively to the crisis, but many have not. State insurance regulators may redeem credibility and restore public trust only if they join the fight for reform.”

In making clear the states will battle to maintain the upper hand on the issue free from federal interference, Blumenthal said that “federalizing this problem is unnecessary and unwise.”


Reproduced from National Underwriter Edition, November 18, 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.