How To Fix Insurance Mess? Spitzer Still Considering

Mr. Grannis' notice of the hearing in lower Manhattan said it was being held to investigate the oversight of insurance licensees and to determine the need for enforcement and legislative remedies.

New York Insurance Superintendent Gregory V. Serio, who is jointly investigating the industry with Mr. Spitzer, told the committee legislation is needed to provide his department with additional funding and the authority to conduct periodic examination of insurance brokerages.

Mr. Serio took pains during the hearing to explain that he had been investigating brokerage fees even as the attorney general's office began looking at the matter.

The New York attorney general's office, in a civil suit resulting from the ongoing probe, has accused Marsh Inc., the nation's largest insurance broker, of taking payoffs in the form of contingent commissions from insurers who were part of a bid-rigging scheme.

Mr. Serio said if he had had the funding and authority to examine brokerages, "then perhaps the $800 million of net revenue [in Marsh contingent fees] would not have gone unnoticed."

Mr. Serio, a Republican administration appointee, and Mr. Spitzer, a Democrat, generally had complimentary remarks about their agencies' activity to investigate the industry. But, Mr. Serio took exception to some of Mr. Spitzer's comments.

While praising the role of the insurance department in conducting the investigation of brokerage activity, Mr. Spitzer said improper activity by brokers had resulted from both a failure of regulation and the companies' own self-regulatory mechanisms.

"There were red flags flying all over the map," he said. Mr. Serio responded that he had been aware of the "red flags" and had been working to remedy the problems.

When Assemblymen Grannis probed for information as to how exactly the investigation of broker fees had originated, Mr. Spitzer said he had commenced it and called on Mr. Serio for help.

The superintendent said that while he did respond to Mr. Spitzer's request in April 2004, which followed a letter to the attorney general from the Washington Legal Foundation questioning broker incentive payments, there had been a confluence of investigations.

Mr. Serio said he had issued a cautionary industry advisory letter on the topic of broker fees in 1998 and he had looked into them again in 2002 after American International Group asked for an opinion on the legality of their fee payments.

Mr. Serio said he had been stymied by the insurance industry when his inquiries ran into "a conspiracy of silence."

The superintendent also testified that there were other problems with the insurance industry business practices, citing as an example the litigation that erupted over just what policy language applied to the destruction of the World Trade Center.

Both Mr. Serio and Mr. Spitzer expressed concerns to the committee about the development of new offshore insurance companies that play an important role in the industry but are beyond the reach of the state regulatory apparatus.

Mr. Serio also called for greater regulation of the reinsurance industry, calling it "the tail that wags the dog."

Insurance representatives, who were due to testify later today, have said that corruption is not widespread and have warned against any legislative regulatory overreaction that could hurt business.