NAIC Conference Call Places State Insurance Investigations on Hold

State insurance commissioners in the southeast and across the United States consulted in a conference call the week after New York Attorney Gen-eral Eliot Spitzer made allegations of rigged bids and price-fixing among commercial brokers and insurance companies.

During the conference call, initiated by the National Association of Insurance Commissioners (NAIC), participants discussed how to handle fallout from the Spitzer investigation. The NAIC has formed a steering committee to coordinate a multi-state effort to determine whether or not rigged bids and price fixing are a major concern.

During the call, state insurance commissioners agreed to review all facts leading up to the New York indictments before launching investigations in their states. NAIC spearheaded an initiative aimed at sharing information and determining appropriate action.

“In light of the broadening insurance brokerage investigations taking place in New York, the Tennessee Department of Commerce and Insurance and the Tennessee State Attorney General’s Office are consulting to consider appropriate actions,” said Paula Wade, communications director and a spokesperson for Insurance Commissioner Paula Flowers.

“Due to the scope of this issue we are working on a coordinated multi-state effort,” Wade said. “Commissioner Flowers remains committed to assuring consumer protection and a healthy and vital insurance market in Tennessee.”

N.C. waiting for the factsThe only information the North Carolina Department of Insurance has been getting about Elliot Spitzer’s efforts in New York has been from television and newspapers, according to Chrissy Pearson, director of communications.

“At this point we are not sure what our next step is going to be, we don’t feel that we have had all of the facts presented to us,” Pearson said. “So far we haven’t received any complaints from North Carolina consumers, nor have we seen any indication that anything wrong has been going on.

“It’s early, so we have not been looking closely at this issue yet–certainly we might find some things.”

Insurance Commissioner Jim Long participated in the NAIC conference call and will support an initiative to provide all state insurance commissions with information on which to base their final decisions.

“The goal of the conference call was to get all commissioners on the same page so Spitzer’s allegations can be shared between states,” Pearson said. “The NAIC steering committee is assembling the facts and information from New York to have them in an accessible place so state insurance officials can read through it all, see what information we have and find out what is going on.”

Fla. ‘concerned’

Tami Torres, a spokes-person for Tom Gallagher’s office in Tallahassee said that Gallagher is “looking at the Spitzer suit trying to determine its impact in Florida.

“We are especially concerned about insurers that write business in Florida and the impact on the allegations to the insurance-buying public,” Torres said.

Big ‘I” calls for disclosure
Robert A. Rusbuldt, CEO of the IIABA has condemned bid-rigging and steering and has called for disclosure by brokers of placement service agreements and called for rigorous prosecution of any illegal activity.

Independent agents, fielding questions from clients regarding their specific relationships with their agents/brokers and insurance carriers, are feeling the impact of the publicity surrounding this issue.

“Rigging bids by providing clients with false or inflated quotes to eliminate true competition is illegal,” Rusbuldt said.

“Executives engaged in such practices should be prosecuted to the fullest extent of the law,” he said. “The few bad actors that engage in these unlawful practices betray the public’s trust and unfairly damage our industry’s reputation. We agree with Attorney General Spitzer that anyone proven guilty of such illegal activities should be brought to justice and punished.”

To ensure transparency in the marketplace, the Big “I” last week adopted a policy stating that brokers should disclose the existence of placement service agreements to their clients, describe the nature of such compensation agreements and advise clients that they can discuss the matter further and request additional information. IIABA has prepared a briefing for members and has adopted a policy regarding broker place-ment service agreements.

“We must keep in mind that placement service agreements are legal under the insurance laws of all 50 states,” said Thomas B. Ahart, president of Phillipsburg, N.J.-based Ahart, Frinzi & Smith Insurance Agency and an IIABA past president. “It is common practice in the industry for brokers to make a full disclosure of such agreements to their clients, which promotes transparency, preserves trust between brokers and clients, and ensures that clients are totally informed about their brokers’ compensation agreements.”

While calling for full prosecution of anyone guilty of illegal business practices and supporting disclosure of placement services agreements, the Big “I” also noted that legal sales incentives should not be impeded.

N.C. agency urges punishment
“If, as it appears, these brokers are guilty of bid-rigging, they need to be punished because it is clearly illegal,” commented Tim Ward, executive vice president of the Senn Dunn Insurance Agency in Greensboro, N.C.

Ward viewed contingent commissions as a totally separate issue.

“Every business in the world pays a bonus for great performance,” Ward explained.

“As an example, I bought cookies from a Girl Scout recently. A week later I heard that she won a bonus prize for being the number one salesperson in her troop–if you follow Eliot Spitzer’s analogy, I should go back and demand my share of her bonus,” Ward said.

In 77 years Senn Dunn has been in business, according to Ward, the agency has never moved business or placed an account based on a contingency.

“Why would any agency want to risk its entire relationship with a client over a 1 percent to 2 percent difference?” Ward wondered.

Impact worries Tenn. agent
“The effect the Spitzer litigation could have on profit-sharing agreements could be devastating to the majority of MGAs, which make most of their profits through these agreements,” commented May S. Bell, a partner in A&B Insurance Solutions LLC in Nashville, Tenn.

“All of our carriers are very concerned about the impact of the New York litigation, which is already affecting insurance company stock in a very negative way,” she said.

A&B Insurance Solutions has been in business five years and writes all lines of coverage except primary auto and small comp, a majority of its business is in casualty products. They write liability and construction and property policies along with habitational, manufacturing, construction, flood and earthquake insurance. They also write a lot of professional liability policies for lawyers and doctors.

“As far as the litigation, I think all agents that receive contingency commission and profit sharing are worried,” Bell commented. “Only time will tell how far reaching this becomes, hopefully the courts will not take away the profit incentives that are built within our industry.”

Bell said it is hard to say if the investigation will affect A&B’s bottom line as early as next year, but could in the not too distant future.

“One area that is already being adversely affected is E&O coverage for insurance carriers,” Bell said, “this marketplace is narrowing due to the potential impact on carriers.”

Topics Carriers New York Agencies Training Development Tennessee