The October Surprise

In a not-so-far-away land not too long ago, insurance professionals were decrying the actions of high ranking officers of companies like Enron, WorldCom, Tyco, etc., for their challenged ethics, their “I’m on top-of-the-world, I can do whatever I want,” attitudes, and, in some cases, their downright illegal behavior. Those kinds of actions, insurers said, would only serve to drive up premiums and limit insurance coverages for all officers and directors of companies across the board. And, indeed, rates went up. (Okay, along with rates for practically everything else, to be fair.)

Now, the October Surprise–the lawsuit filed on Oct. 14 by New York Attorney General Elliot Spitzer that includes charges of bid rigging and questionable fee arrangements between insurers and brokers–has pushed the insurance industry into the spotlight for alleged unethical behavior. That Spitzer was looking into the insurance industry was no surprise, but the unexpected results of his probe definitely shook the industry. Whether his allegations turn out to be true, or if Spitzer is simply trying to raise his profile for future political gain, as some have said, the negative attention is definitely a public relations setback for the insurance industry.

Some, in reaction to Spitzer’s charges, are taking the stand that illegal activity in the industry is a sign of poor regulation on the state level. In a letter to Pennsylvania Insurance Commissioner Diane Koken, president of the National Association of Insurance Commissioners, Birny Birnbaum, executive director of the Austin, Texas-based consumer advocacy group, Center for Economic Justice, said the New York investigation reveals “not only the failure of state insurance regulation to protect consumers but the refusal of state insurance regulators to take responsibility for their failure.” Birnbaum called upon state “regulators to take decisive action to address the systemic problems with state-based market regulation and to show us that our confidence in you has not been misplaced.”

For its part, the NAIC has created an Executive Task Force on Broker Activities, which includes members from 13 state commissions, to address alleged criminal misconduct and violations of existing insurance laws involving insurers and brokers. In announcing the task force, Koken said it will pursue a three-pronged action plan designed to coordinate multi-state interest and inquiries, leverage state expertise and resources, and engage consumers. One of the likely developments will be a model act for brokers’ disclosure of compensation.

“The idea that any insurance consumer, whether corporate or personal, was misled, defrauded, or abused simply reinforces the need for a strong system of coordinated state insurance regulation,” Koken said. “This Task Force and three-pronged approach is evidence of our commitment, and it’s just one step in an ongoing process to ensure a safer marketplace where consumers at all levels are protected.”

Topics Legislation Market