Serio Rips Insurers; Calls For Internal Reform

He said the joint insurance department investigation with New York Attorney General Eliot Spitzer, which has led to charges of broker-insurer bid rigging and price fixing, had ramifications that go well beyond the incentive fees that many have now discontinued.

Mr. Serio also marveled that commercial policyholders have voiced no outrage about revelations of broker-insurer price fixing and bid rigging as part of illicit fee arrangements.

The "strange" and "curious" silence by risk managers whose firms were victimized almost made it seem as if there was "a mass victimless crime," he commented. However, their quiet, he said, will not deter the prosecutions that are underway.

Later, he told National Underwriter that part of the reticence may be due to embarrassment on the part of risk managers who were taken advantage of.

In his talk, Mr. Serio said he found it disturbing that despite the propriety of broker fees having arisen in the 1990s, and his department's publication of a circular letter informing brokers and insurers there had to be full fee disclosure and to avoid dishonest behavior, "they really didn't get it."

A year ago, before the charges from the broker investigation were announced, "was the time to tell us ?so and so is a bad guy,'" instead of waiting for investigators to track down incriminating documents, he said.

If property-casualty insurers want to reform themselves, Mr. Serio said they can take as a template the actions of the life insurance industry after the 1993 scandal over agent use of misrepresentation, lies and fraud to sell policies, which led to massive fines and lawsuits against MetLife, Prudential and other carriers.

The industry at that point created a market conduct code and the Insurance Marketplace Standards Association–a voluntary group that monitors the conduct of its members.

Any organization that the p-c industry creates, Mr. Serio said, must go well beyond sales practices. He was critical that in the wake of the World Trade Center policy dispute, the industry is still guilty of "sloppiness" and "writing [commercial errors and omissions] risks with policy language to follow way in the future."

He also hammered the industry for failing to come up with coverage for difficult risks, ranging from terrorism to cyber- crime. Mr. Serio said instead of offering protection, carriers are coming up with policy exclusions. This is a similar attitude, he said, to the one that produced questionable broker contingency fees.

In calling on insurers to be proactive, Mr. Serio said his point is to have them say when "there is something wrong, our integrity has been compromised."

Insurers, he added, have "a golden opportunity to say ?we finally get it.' The state of the market is in their hands. We'll see how far they go and how far they will be pushed."