Spitzer Down Under

New York Attorney General Eliot Spitzer sure does get around.Indeed, the shock waves from his probes into bid-rigging andcontingency fee abuse on the part of insurance brokers and carriersreverberated all the way to Australia.

This spring, I was asked for permission to reprint one of mycolumns in a magazine called Insurance & Risk Professional, theofficial publication of the National Insurance Brokers Associationof Australia. The piece (headlined "Is Ignorance Bliss?") calledattention to the fact that a titanic industry event–the resignationof Maurice Greenberg as AIG chairman and CEO–hardly caused a rippleamong the public because insurance has such a low profile, forbetter or worse.

I saw my column in the August-September issue, but what reallycaught my eye was the lead news headline: "Brokers In The Clear."It seems Mr. Spitzer's revelations prompted Aussie regulators tolaunch a six-month investigation of their own. "It's official," themagazine reported. The probe "found brokers aren't ripping offtheir clients, misleading them or giving them bad advice," butwarned that regulators will "keep an eye on developments."

You could almost hear the sigh of relief coming off the page.Not that the inquisition was painless–the magazine said "truckloadsof documents were dispatched to the regulator" to secure the cleanbill of health.

That's a fine "g'day" to you, mate!

There was no mention of complaints by risk managers. Nosuspicious activity reported. No leaks by whistleblowers. Just theshadow of Mr. Spitzer hanging over not only the U.S. insuranceindustry but now distant Australia as well!

However, as I read on, I realized why the local authoritiesmight have reacted so harshly. The article reported that prior tolast year's passage of Australia's Financial Services Reform Act,"brokers were specifically forbidden from receiving contingentcommissions."

So that's it! Aussie regulators were concerned they had opened aPandora's box with the new law, creating incentives for brokers tosteer accounts to carriers paying the best volume-based bonus,regardless of the best interest of clients.

So, on second thought, the Aussies did exactly what they had todo. With the use of contingency commissions increasing"substantially," according to the magazine, regulators had to puttheir brokers on notice that the types of abuse uncovered in theUnited States would not be tolerated.

Hopefully, it also prompted Australian brokers to reexaminetheir own compliance procedures and make sure the highest ethicalstandards were being maintained.

Anyone tempting fate should beware, as Australia's executivedirector of financial services regulation, Jennifer O'Donnell,warned that the "management of conflicts of interest and disclosureof remuneration by insurance brokers will continue to be thesubject of regulatory scrutiny," the magazine reported.

The Australian Securities and Investments Commission sternlyadded that "in subsequent reviews, ASIC will expect to see robustconflict management arrangements…ASIC expects to see disclosurethat is timely, specific, prominent and meaningful."

In response, the article glumly noted that "certainly as adocument to reassure consumers it did little to foster trust inbrokers, but did much to portray the regulator as the vigilantprotector of consumers' interests."

It's unfortunate if the Australian brokerage community tookoffense at the probes. After all, no one had accused them of doinganything wrong.

Yet, Aussie regulators did what they had to do. Ignoring the redflags raised by the Spitzer probe would have been irresponsible.Had insurance regulators here in the United States been similarlyproactive, no one Down Under may have ever heard of EliotSpitzer.

"Had insurance regulators here in the United States been moreproactive, no one Down Under may have ever heard of EliotSpitzer."