The hearing held last Tuesday by a Senate panel pulled out all the stops and produced all the stars of the current and growing investigations into insurance brokerage and agent compensation practices.
The hearing was titled “Insurance Brokerage Practices, Including Potential Conflicts of Interest and the Adequacy of the Current Regulatory Framework” and was held by a subcommittee of the Senate Governmental Affairs Committee.
The original spur for the hearing began in the commercial property-casualty business with the hullabaloo surrounding New York Attorney General Eliot Spitzers investigation of big broker Marsh Inc.s practices, which included contingent commissions and alleged bid-rigging. And many of the officials called to testify at this hearing did indeed speak about that side of the business.
But make no mistake, the probes are spreading to the life and health side of the businessand fast.
As Connecticut Attorney General Richard Blumenthal said of his investigation, it has “expanded significantly in size and scopeand continues to broaden and escalate.” Blumenthal has subpoenaed upwards of 35 insurers so far.
And even though it is still early in the probe, 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.”
As you will see in a story on page 8, California Insurance Commissioner John Garamendi has filed a lawsuit against 4 major life and health insurance companies and a San Diego-based brokerage over incentives to the brokerage for steering primarily employee benefits-type business to the insurers.
The National Association of Insurance Commissioners in the person of New York Insurance Superintendent also testified at the hearing. Anyone who is used to the familiar NAIC that moves with all deliberate speed really needs to take a look at the new were-on-top-of-the-situation NAIC.
It is amazing how the application of some federal fire has got the NAICs engine purring almost like a Mercedes, quite a change after years of clunking along in fits and spurts.
Serio spoke about the NAICs proposed amendment to its Producer Licensing Model Act which would not allow “any insurance producer,” whether broker or agent, to receive any payments from a carrier unless it is disclosed in advance to the insured and the insured has agreedin writingto the payment.
Garamendi in California has unveiled a proposal for full and complete disclosure of payments made to producers by insurers.
The handwriting is clearly on the wall. There can be little doubt that some kind of fuller disclosure of compensation is heading down the pike. NAIC, for instance, put its work on amending the Producer Licensing model into high gear because it wanted the 50 states to get a fast start on enacting the changes early in 2005.
With this gathering head of steam in mind, it has to be said that the stance of the National Association of Insurance and Financial Advisors, as articulated by its CEO David Woods, seems pretty head-in-the-sand.
While NAIFAs policy says it is in favor of total cost disclosure in a transaction between an agent and a customer, it is opposed to any mandated disclosure of an agents life insurance commissions during the sales process.
Woods told National Underwriter, “Once you start disclosing all the components, the question is how thin do you slice that?”
I have a feeling we may find out how thin its going to be slicedand sooner rather than later.
Cant you hear the rasp of knives being sharpened?
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.