Senate Hearing Spotlights Probes And Remedies State officials welcome a federal role in investigating brokerage practices
By Arthur D. Postal and Matt Brady
A hearing last week before a Senate panel on insurance brokerage practices is unlikely to be the last federal word on the growing investigation into agency and brokerage practices, say industry lobbyists, especially in light of comments by various state officials that some federal muscle would be helpful.
New York Attorney General Eliot Spitzer said Congress needs to look into the insurance industrys “Pandoras box” of problems.
Also at the hearing, Robert Hunter, director of insurance for the Consumer Federation of America, said the revelations of wrongdoing are not likely to stop with commercial property-casualty insurers and brokers.
“The Spitzer investigation so far has centered upon brokers, who work for the customer, as opposed to agents, who represent insurers,” Hunter testified. “It also has focused on the sale of commercial property-casualty insurance and not on personal lines, such as life, health, auto and home insurance. However, because financial conflicts of interest similar to those at the center of the Spitzer investigation exist in the sales of group life and health insurance and some personal policies, similar abuses in these areas may be uncovered.”
“Were finding these types of actions in other lines of business as well,” Spitzer said, adding that these acts create a “distorted incentive” for sales that drive premiums up.
Specifically, he said there have been instances in which agents dealing in personal lines have been offered stock or stock options by an insurance company, or even a loan, without requiring repayment depending on the agents sales.
Connecticut Attorney General Richard Blumenthal told the panel that his investigation into wrongdoing in the insurance brokerage industry, primarily dealing with the life and health industries, has “expanded significantly in size and scopeand continues to broaden and escalate.” (See story below.)
California Insurance Commissioner John Garamendi told the panel that as a result of his departments investigations thus far, “we have reason to believe this spills over into employee benefits.” (See story below and on page 8.)
New York Insurance Superintendent Greg Serio, who represented the National Association of Insurance Commissioners as chairman of its Governmental Affairs Task Force, told the Senate panel that state regulators are up to the task of regulating insurance, and unveiled a “three-pronged” program state regulators will implement to strengthen oversight of agents and brokers. (See story below.)
One lobbyist said, “I think the relevant committees will be closely watching the NAIC actions in December. If the NAIC comes up with a strong transparency standard that does not cause the industry to come unglued, I think there is a strong desire by Congress to help give them the tools to implement it.”
The lobbyist added, “In reality, I think the staff of the principal committees of jurisdiction took umbrage at the showboating nature of the hearing, and it is likely to make them want to contrast their own efforts as more thoughtful.”
In his testimony, Spitzer supported state regulation of insurance, but added, “Nonetheless, I do believe there is a role for the federal government, especially in the areas of offshore capitalization and investment by insurance companies.” At a minimum, he said, “federal involvement may be necessary to assure some basic standards of accountability on the part of insurance professionals.”
Spitzer endorsed the idea of giving the federal government the power to investigate the industry, although he said he could not support any amendment to the McCarran-Ferguson Act that would preclude the states from undertaking their own investigations. However, he said he would like “the additional scrutiny Congress can provide. Their investigative power is enormous.”