California, NAIC, Continue To Probe Broker Issues

In California the attorney general's office has an internal team of lawyers looking at a variety of insurer issues including broker payments and bid rigging, said Tom Dresslar, a spokesman for Mr. Lockyer's office.

He said the team includes lawyers from the antitrust, securities fraud and special crimes units, and the section representative for the California insurance commissioner.

The attorney general is working with California Insurance Commissioner John Garamendi, he added. Mr. Garamendi said Oct. 22 he was preparing to file a suit this week against unnamed insurance concerns. A spokesman from Mr. Garamendi said today the filing has been postponed because "there is an ongoing investigation we want to complete before we begin civil action."

Mr. Lockyer's spokesman said it would be premature to say the attorney general has a formal investigation underway at this point. "It is at a preliminary stage. We want to see what role, if any, we will play," said Mr. Dresslar. A decision should be made fairly soon, he added. "We do not want to tarry too long."

Diane Koken, president of the National Association of Insurance Commissioners, Kansas City, Mo., detailed plans worked out by commissioners to address any brokerage problems that come to light after an investigation that it plans.

Ms. Koken also defended the work of state insurance regulators. "Federal oversight would not have caught [alleged abuses] faster than the states," she said.

The New York Insurance Department has been working with Attorney General Spitzer's office, she added. In fact, she continued, both the New York and California insurance department had received a letter expressing concern about alleged questionable practices in February and had started an investigation but had not gathered sufficient evidence to proceed, Ms. Koken said.

Ms. Koken says that federal lawmakers have not been in contact with her regarding the issue or its impact on the debate on federal regulation of insurance.

The immediate work of regulators has already started with the selection of a group of 13 state insurance commissioners to investigate the issue of broker incentive fees, Ms. Koken said. That group includes Illinois, California, New York, Texas, New Jersey, Georgia, Connecticut, South Carolina, Pennsylvania, Oregon, Maine, Montana, and Missouri.

Prong One of a three-pronged approach the group plans is the "expeditious development of a model regulation for broker disclosure. Had there been greater transparency, there might not have been the structure to do alleged bid-rigging," Ms. Koken said.

The regulation will focus on disclosure for broker compensation, she said. Whether or not the term broker will be defined to include an agent still needs to be discussed, she said. In Oregon, a proposed regulation that could be effective next month will have the term broker encompass insurance agents.

Proposed regulations, including the pending Oregon regulation and a proposed regulation in California, will be looked at with all other available templates in developing the model regulation, Ms. Koken said.

Prong Two will involve fact gathering, she added. "We recognize that we still don't know the facts?whether it is one line, all lines, certain companies, certain regions, certain states. There needs to be a fact finding effort."

The fact gathering will be similar to the approach used for the race-based premium issue and the Y2K fact finding project, she said. The race-based premium issue concerned unlevel premium charges because of race, and the Y2K issue concerned company information technology program readiness for the year 2000.

Based on findings, targeted examinations would be undertaken, she adds.

The third prong is a Jan. 1, 2005 launch of an NAIC online fraud reporting site that anonymous tipsters could go to, Ms. Koken said.