Garamendi Sues Universal Life; Urges Disclosure
By Daniel Hays and Arthur D. Postal
Making good on previously announced plans to sue unidentified segments of the insurance industry, California Insurance Commissioner John Garamendi announced last Thursday that he is filing suit against San Diego-based Universal Life Resources and four major insurers.
Earlier in the week, in testimony before a Senate subcommittee, he also defended a proposal he had put forth for full and complete disclosure of payments made by insurers to producers.
"I would suspect that before the final chapter in this investigation is written, all lines, brokerages and perhaps even agents will be subject to scrutiny," Mr. Garamendi told reporters in a conference call immediately after the hearing.
His suit against Universal Life is the second action against the company. New York Attorney General Eliot Spitzer filed an action on Nov. 12.
On Tuesday, speaking before the Senate Committee on Financial Management, the Budget, and International Security, a subcommittee of the Senate Governmental Affairs Committee, Mr. Garamendi discussed proposed full-disclosure regulation that he released for public review in California in October.
Obligations for full disclosure "should be absolutely uncontroversial and should not be opposed by anyone interested in a fair, competitive, open market for insurance," he testified.
"Brokers and agents will ask, Why should we have to disclose the amount of our commissions? Most salesmen sell on commission, yet they are not required to disclose the source and amount of the compensation they receive."
The answer, he said "is that buying insurance is not like buying groceries. Securities brokers and real estate brokers are required to disclose the source and amount of their commissions, and so should insurance brokers and agents.
The objective of disclosure, he said, is to prohibit the broker from putting his or her own financial interest ahead of clients. A broker might do this, for example, by failing to obtain quotes for insurance from a reasonable number of insurers able to meet the clients needs, because the broker has an agreement to receive compensation from some insurers but not others.
(Additional reporting by Matt Brady.)
Reproduced from National Underwriter Edition, November 18, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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