I recently had a conversation with an attorney at a major insurer regarding the “Spitzer investigations.” When asked his opinion of the emerging scandal, he all but brushed it off, saying “these risk managers knew what was going on all along.”
My reaction was one of disbelief mixed with alarm. Disbelief at the cavalier brush off of what is becoming a rapidly growing scandal, and alarm that this attorney thought it was OK as long as the victims knew they were being victimized. I also felt somewhat na
In the last two days I have been interviewed by two separate publications (Kiplinger’s and Risk and Insurance) regarding the potential impact of the Spitzer investigations into contingent commissions, bid-rigging, and other unethical and inappropriate activities in the insurance industry. Both publications were seeking information about the potential fallout, impact on policyholders and insurers, and prognostication about on whom the next shoe would drop.
Here’s the summary in brief.
This investigation has just gotten started. Garamendi in California and Blumenthal in Connecticut are but two of the other State Attorneys General who are beginning their own investigations.
Although Spitzer started with P&C insurance, the insurance investigations have expanded significantly. Expect to see more subpoenas of life and health insurers, especially those with significant blocks of AD&D, STD, LTD, and life business.
While the life and health industry will be a target, it is unlikely that the practices that have so enraged Mr. Spitzer et al are as prevalent on this side of the business as they evidently are in the P&C world.
Those who pooh-pooh the contingent commission and sham bidding practices by claiming that risk managers and their colleagues knew what was going on are whistling past the graveyard. These are precisely the kind of back-room, clubby relationships that have led to the drastic reforms in the mutual fund and investment banking industries.
There are many other relationships in the insurance world that share similar traits with these alleged offences. TPAs that receive payments from managed care firms, providers that steer patients to their own imaging clinics, and the “percentage of savings” fee system are but a few that come to mind.
Finally, AIG was recently indicted by Spitzer. This was the first indictment directed against a corporate entity rather than an individual. As the Wall Street Journal recently noted, no financial services company has survived an indictment. While it would be wildly inappropriate to suggest that the very existence of AIG is at risk, it would also be foolhardy to think that the company will emerge unscathed.