Insurance industry lawyers at an industry conference dismissed recent brokerage investigations as minor scandals, but a regulator warned that probes with bigger repercussions are underway now.
The comments from Audrey Samers, deputy superintendent and general counsel for the New York State Insurance Department, came after a lawyer and an insurance company executive said that industry scandals involving employees entangled in bid-rigging schemes paled in comparison to other financial scandals, and another defense lawyer suggested that regulatory fines against brokers were simply "revenue-raising" actions.
Ms. Samers said that finite reinsurance transactions now being investigated involve a major financial impact on the insurance industry and top executives. She also denied that the monetary settlements in broker commission investigations were revenue-raising in nature.
Her comments came after Stephen Marcellino, a partner with the law firm Wilson, Elser, Moskowitz, Edelman & Dicker in New York, told a small gathering of professional liability brokers and underwriters Wednesday to keep the brokerage probes in "perspective."
He said that junk bond trader Michael Milken paid an individual fine of $400 million "in 1988 dollars" to settle securities fraud charges, while Marsh & McLennan's restitution fund related to its involvement in bid-rigging activities was $850 million for the entire firm.
Mr. Marcellino was leading off an educational session presented by the Minneapolis-based Professional Liability Underwriting Society about ethics in the property-casualty industry and business practices in the environment since New York Attorney General Eliot Spitzer sued Marsh & McLennan last year.
Recalling names like Ivan Boesky and Charles Keating, who were involved in insider trading and savings & loan scandals in the 1980s, other panelists had similar assessments when Mr. Marcellino asked them to compare the insurance scandals to what's gone on in the past.
Stephen Sills, chief executive of Darwin Professional Underwriters in Farmington, Conn., said, "I think it's actually insulting" to the insurance business to make such comparisons, referring in particular to the collapse of banks in the 1980s–"banks that were looted, with millions of loans made to bogus organizations, some of which were represented on the boards of those institutions." He added that the people who profited from those scandals made billions of dollars, while individual depositors lost money when banks failed.
"All those things are completely different from what you're seeing now in the insurance business," he said, noting that members of boards, in those prior scandals, were arrested. Here, in the insurance scandals, the individuals being charged "are overwhelmingly middle-management people, not the decision-makers."
Marvin Picholz, a partner for the Picholz law firm, agreed. "I don't think this ranks up with the looting of the S&L's or what went on with Worldcom, said Mr. Picholz, a defense lawyer, who represented Douglas Faneuil, a former assistant to Martha Stewart's broker who testified against Ms. Stewart.
"Many of those were rank lootings…as opposed to a course of dealing that has traditionally been viewed as an acceptable course of conduct," Mr. Picholz said, referring to the p-c broker practice of charging contingent commissions.
Mr. Picholz, who has held positions with the Securities and Exchange Commission, said, "If I were back in government, I think I'd be embarrassed to announce that I'm fining an institution $150 million, $400 million, or $1.5 billion," while admitting that no one "in senior management" could be found that had any responsibility, "so we went and got the guy who was the third-level manager of the company."
He suggested that regulators imposing "those kinds of fines," while saying "there wasn't anything going on at the senior level," might simply be engaged in revenue-raising measures at the government entities involved.
Ms. Samers responded that investigations of finite reinsurance deals that have followed the commission investigations involve much bigger dollar impacts to the insurance industry.
"Fundamentally, what we settled for with Marsh, Aon and Willis was returning money to policyholders. It clearly was not a revenue-raising measure," since no money is going to the state, she said.
Findings in investigations of finite transactions (transactions which are distinguished from traditional reinsurance deals by various types of limitations on the amount of risk transferred)–including the investigation of American International Group–"are clearly at the senior management level," she said.
"They're not middle managers," she said, adding that "failures–across the board–at the corporate board level" are currently being unearthed in finite probes.
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