Mass. Attorney General, Insurance Commissioner Launch Probes into Brokers’ Fee Arrangements

October 25, 2004

Massachusetts’ attorney general and the state’s top insurance regulator are separately investigating fee arrangements between insurers and brokers that have led to litigation and subpoenas elsewhere over the past week.

Attorney General Thomas Reilly’s office is “using every tool available to us to gather information” on industry sales practices that could constitute violations of state consumer protection and false claim statutes, Reilly spokesman Corey Welford said Friday.

If the investigation uncovers violations, authorities could choose to levy fines.

Welford declined to say which companies or brokers are being investigated.

Separately, Massachusetts’ Division of Insurance has opened a “market conduct examination” that gives regulators access to companies’ records, said Chris Goetcheus, a spokesman for Insurance Commissioner Julianne Bowler.

The investigation largely involves commercial group accounts for property and casualty insurance as well as life and health policies, but could be expanded to smaller lines of insurance, Goetcheus said.

The division sent letters Thursday to 10 insurance companies seeking information on their practices.

“We want to ensure there was no price fixing between brokers and the carriers they contract with,” Goetcheus said, “and we want to get a full understanding of the manner in which contingency commission arrangements are used by insurers.”

Any findings of illegal activity would be forwarded to Reilly’s office, he said.

At issue is whether the brokers are improperly steering business to insurers who pay the brokers the highest fees — paid on top of commissions — rather than seeking the best deals for their customers.

Massachusetts is not among the states with regulations requiring brokers to disclose to customers so-called contingent commissions, Goetcheus said. Many brokers nevertheless disclose those commissions.

Massachusetts is among several states, including California and Connecticut, that have opened investigations into industry practices since New York Attorney General Eliot Spitzer filed a civil suit on Oct. 14 against New York City-based Marsh & McLennan Cos., the nation’s leading insurance brokerage firm and parent of Boston-based Putnam Investments.

Spitzer called contingent commissions “payoffs” and also accused the insurance brokerage of bid-rigging.

Since the lawsuit’s filing, several major insurance companies, including Boston-based Liberty Mutual Group, have disclosed receiving subpoenas for information about their practices.

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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