Calif. AG Launches Probe Into Ins. Cos., Broker Practices

October 29, 2004

Attorney General Bill Lockyer announced he has launched a formal investigation into possible antitrust violations and fraud by insurance companies and brokers, and said the probe’s initial focus will be on bid-rigging and other anti-competitive conduct in the industry.

“California’s laws could not be clearer,” said Lockyer. “Businesses cannot conspire to give themselves an unfair advantage over competitors or harm consumers by keeping prices artificially inflated. They cannot breach their duty to tell customers the whole truth. Any insurance company or broker violating these laws will be held accountable.”

Lockyer’s investigation responds to a nationwide scandal that has rapidly engulfed the insurance industry.

The unlawful conduct is thought to be widespread, and allegedly involves inadequately disclosed payments from insurers to brokers for bringing in business, and placing phony bids to deceive clients into thinking they are buying coverage at competitive prices. Lockyer has been consulting with Insurance Commissioner John Garamendi on the commissioner’s investigation into the contingency payments to brokers, called “placement service agreements” or “profit sharing agreements.” Lockyer will continue working with Garamendi on that aspect of the case.

The initial focus of Lockyer’s probe, however, will be on alleged bid rigging and other potential antitrust violations, including price fixing. California’s antitrust law, known as the Cartwright Act, prohibits such anti-competitive behavior. Lockyer said his investigation will utilize the talents of an in-house, multidisciplinary team of experts in antitrust, securities, consumer, and business and tax law. Lockyer also announced he has established an e-mail whistleblower hotline to receive complaints and information about the alleged practices under investigation.

Employees and clients of insurance companies or brokers can submit such information to insurancewhistleblower@doj.ca.gov . Lockyer said he also will set up a phone line to receive whistleblower information. That phone number will be posted on the Attorney General’s web site at http://www.ag.ca.gov as soon as it is established.

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