Washington Insurance Commissioner Mike Kreidler says his office this week will seek records from some of the companies charged elsewhere with bid-rigging and other manipulation of the commercial insurance market.
Since news of a New York investigation into the irregularities broke last month, he says questions have been raised about possibly similar practices used by insurance companies and brokers in Washington.
Monday, Kreidler did not want to disclose the names of those who will receive requests for information.
His office has also issued an advisory reminding brokers they must disclose all compensation they receive from insurance companies, as well as the fees customers pay for use of broker services. Insurance companies must put all compensation agreements with brokers in writing. Premiums must cover the cost of all such payments.
Insurance regulation has become a hot topic since New York Attorney General Eliot Spitzer alleged Marsh & McLennan Cos. and some of the world’s largest insurance companies were rigging bids and awarding kickbacks in the commercial insurance business. A few individuals involved have already acknowledged their complicity.
Spitzer has pressed on with his investigation, expanding his inquiry to other companies and other lines of insurance.
Meanwhile, the insurance industry has gone to Congress looking for relief from what industry officials say is a patchwork of regulations imposed by the 50 states that add to the cost of insurance and slow the introduction of new products. Consumer groups have also chimed in, saying state insurance commissions are too cozy with the industry at the expense of rigorous consumer protections. They want Congress to authorize a Federal Trade Commission investigation into the insurance industry.
Apparently, they have forgotten it was Spitzer who clamped down on securities industry abuses while the U.S. Securities and Exchange Commission sat on its hands. Thanks to his leadership, major brokerages coughed up $1.4 billion to settle conflict-of-interest charges. Ties between brokers and stock analysts were severed to prevent a repeat of the skulduggery that cost misguided investors billions when the stock market collapsed in 2000 and 2001.
The SEC has resumed a more active watchdog role — many in the mutual and hedge fund industries would say too active — under Chairman William Donaldson. But there has been little or no federal oversight of the insurance industry since the 1930s.
Members of the American Insurance Association, the trade group for property-casualty insurers like those implicated in the Spitzer investigation, would like the option of a federal insurance charter in lieu of state charters.
The National Association of Insurance Commissioners Monday responded to the challenge by announcing the formation of a Task Force on Broker Activities that will develop new standards for broker disclosure of the compensation they receive from insurance sales. Members will also draft templates states can use when gathering information from brokers and insurers, with the goal of developing new ways to examine their businesses. An online mechanism for reporting fraud would also be implemented.
Kreidler and four other state insurance commissioners have been charged with responding to proposals for a renewed federal role in regulation of the insurance industry. Although he sees some merits in draft legislation, he questions how well officials in Washington, D.C., can monitor lines of insurance sold to individuals.
“I have never seen a federal agency do a good job of consumer protection,” says Kreidler, noting his office receives 7,000 consumer calls a month. If those calls were fielded by the FTC, “You’d probably leave a message and never hear back,” he says.
Kreidler adds that federal overseers might want all or some of the premium taxes the State of Washington collects. In 2003, the total was $334.6 million on $23 billion in premiums. The tax is the second biggest contributor to Washington’s general fund.
Reform, voluntary or otherwise, may be inevitable. If so, the focus should be on uniformity of standards, not consolidation of oversight. Regulators too often become the servants of the regulated. If the FTC or other federal agency can improve consumer protection and consumer choice, all the better. But Washington, D.C., must not become a refuge for insurers trying to escape scrutiny by state authorities.
(The columnist is an irate shareholder of one of the companies rightly fingered by the Spitzer investigation.)