The insurance industry can expect new charges from New York Attorney General Eliot Spitzer relating to personal lines insurance, according to the state official.
Speaking before an Assembly Insurance Committee hearing in Manhattan last week, Spitzer said his office has additional inquiries in progress and that more settlements and charges could be coming in the weeks ahead.
He said that while the public focus thus far has been on commercial insurance “there are other private inquiries” into personal lines that “will come out in due course.”
He also urged that officials at all levels look into the vertical relationships between brokers and offshore insurers and reinsurers.
The committee, chaired by Assemblyman Alexander “Pete” Grannis, is looking into possible legislative responses to the brokerage compensation and bid rigging practices unearthed by Spitzer.
Grannis expressed interest in going beyond statutorily imposed disclosure of broker compensation to a legislative prohibition against any contingent commissions. He also criticized the New York State Insurance Department for lax enforcement of one of its own circular letters (No. 22) issued in 1998 that called for disclosure of any contingent payments by insurers.
Spitzer said he is “still forming” his opinion on what, if any, legislation is needed.
“If we were to start with a blank slate I would intuitively say full disclosure would be the model but now I would say disclosure is not sufficient. The brokers have made that determination,” Spitzer told Grannis and others on the panel.
Spitzer said it is possible that stronger enforcement, rather than new laws, may be the correct response. “Time will tell,” he said, suggesting he would offer suggestions after all of his insurance probes are completed.
The Independent Insurance Agents & Brokers of New York Inc. expressed its strong support for incentive arrangements and tried to explain to lawmakers how typical independent agents differ from the large brokerage firms such as Marsh that are under scrutiny.
IIABNY Secretary-Treasurer Sharon Emek, Ph.D. told the committee that while the largest brokerages measure their revenues in the multiple billions of dollars, the largest “typical” independent agency in the state has less than $75 million in annual revenues, with the vast majority at less than $5 million.
She also noted that incentive compensation deals or profit sharing arrangements earned by independent agents differ greatly from the placement service agreements and market service agreements at the heart of the current industry investigations. Unlike MSAs and PSAs, proft sharing agreements are earned over time, often multiple years, and are not tied to any single account, she noted. Emek testified that PSAs and MSAs are available only to the largest insurance brokerages, such as Marsh & McLennan and Aon.
Emek, a Manhattan agent-broker, represented the suburban Syracuse-based association and was one of five parties to testify in person at the committee’s public hearing held at the Alexander Hamilton Customs House in New York City.
Among those attending but not speaking at the heraing was Howard Mills, the man picked by Gov. George Pataki to replace outgoing Insurance Superintendent Greg Serio. Serio did testify.
Following her prepared remarks, Emek addressed several committee questions, including one over the issue of how consumers know if they are receiving the best service from agents who represent insurance companies that pay them profit-sharing benefits.
“Our business is about clients, not carriers,” she said. “The value of my agency is based on client retention and our book of business. If we fail our clients, we’re of little value to our companies and our agencies.”