The multiple investigations triggered by New York Attorney General Eliot Spitzer one year ago have thus far tarnished the insurance industry’s public image more than they have changed its private behavior, according to panelists at a recent New York City seminar.
Marsh and the other large brokerage houses caught up in the investigations have had to pay restitution and agree to halt certain practices. But for the rest of the industry, which has maintained it was not doing anything wrong in the first place, it appears to be business-as-usual.
“The New Ethics of Insurance,” was hosted by the eastern chapter of the Profes-sional Liability Underwriting Society. The panelists sought to measure the investigations not only in dollars but also in how they have changed the industry.
“There is a heightened level of sensitivity. Most of the scrutiny has been directed at brokers but even companies have to weigh how they conduct their business,” claimed Stephen Sills, chief executive officer of Darwin Professional Underwriters of Farmington, Conn.
Much of the industry’s bad image can be blamed on the media’s preoccupation with scandal and the willingness of public officials to exploit the media, suggested moderator Stephen Marcellino, with Elser Mosko-witz Eddelman & Dicker LLP.
“The media causes a lot of problems,” asserted Audrey Samers, deputy superintendent and general counsel for the New York State Insurance Depart-ment, who offered the image of “dueling agencies” racing to get press coverage. She recounted how minutes after leaving a meeting with people from the attorney general’s office she received a phone call from the Financial Times asking her to confirm that the AG had asked the department to agree to something.
“At the insurance department, we’re not used to doing market conduct exams in the press and I don’t think it’s productive,” Samers said.
According to defense attorney Marvin Pickholz, the media is under competitive pressure to attract viewers and readers. Prose-cutors use the media to help create an environment against a defendant. In the process, they can ruin lives.
“The pressure used to be on the government agencies to be careful before bringing charges but now there are competing regulators,” Pickholz said.
Not everyone sees the media as the culprit. “I think they’ve been pretty fair. It’s a complex subject,” Sills remarked. “There are people who have done things they shouldn’t have done. I think the disinfectant of sunlight from front pages is a good thing and it certainly wakes up some people a lot better than a memo from the CEO.”
For others, complaining that it is unfair is a waste of time. “The media is not about fairness; it’s about what can you put in a 10 second sound bite. That’s the price you pay in our society and you have to figure out how to deal with it,” said Ann Marie Marson of James River Insurance Company.
As senior vice president of claims at James River, Marson has to figure out how to deal with the industry’s negative image on a daily basis. She and others are worried about how the industry’s low standing in the public’s view will affect how it fares in the courts.
She maintained that the industry was making real progress in overcoming a negative public image just before Spitzer gave it a new black eye. “It makes it harder for claims to do its job,” she said.
It’s harder now for claims departments because jurists and judges see and hear the news regarding Spitzer. This causes carriers to think twice about taking to trial certain cases where a negative industry image could make a difference. “Perception is reality and this comes to fruition in the jury box,” she said.
While claims departments might be feeling the pressure, it’s not clear that others in the industry are.
Spitzer targeted broker compensation including contingent commissions, yet little has changed in the industry’s compensation practices. Most insurers are still paying contingent commissions and, except for the three biggest brokers that settled with Spitzer, most brokers and agents are still accepting them.
“They still very much exist beneath upper tiers of brokers and name brand P&C companies are still paying them,” Sills said.
The insurance department’s Samers, who has been active in the investigations, acknowledged that little has changed in the compensation arena. There still is no law or regulation against contingent commissions in New York. Neither Spitzer nor the insurance department has pressed for a statutory prohibition on contingencies; instead they have called for improved disclosure of compensation by agents and brokers. The department is currently drawing up mandatory compensation disclosure rules for agents and brokers.
Personally, Samers said she would like to see the percentage an agent or broker receives for commissions stamped on every declarations page. That’s her opinion and not a department position, she said. Samers and others stressed that contingent commissions per se are not the problem; instead it is the questionable activities that they spawn, such as bid rigging and account steering.
When an audience member questioned why insurance brokers should reveal their income since furniture, car or clothing salespeople do not, Samers shot back. “I have heard that so many times. It is such a disservice to the industry,” she charged. Insurance brokers build relationships and have the policyholders’ best interests at heart, she said, suggesting other salespeople do not always. “You guys sell trust and integrity,” she said, generating applause from others in the audience.
Attorney Pickholz explained that regulators are concerned with not whether but why a broker got a contingent commission. “Did it make him select a company he wouldn’t otherwise have chosen for a client?” is the question. According to Pickholz, the industry must develop a set of standards governing what to tell customers in language that is understandable to those with different levels of expertise and intelligence.