ew efforts to investigate the insurance industry
emerged yesterday as the Connecticut attorney general issued subpoenas to
big health insurers and providers of employee benefits and auto insurance.
And California officials took steps to end what regulators have called
misleading practices by insurance brokers.
In Connecticut, the home of Aetna, one of the nation's largest health
insurers, and a base for Cigna and Anthem, Richard Blumenthal, the attorney general,
said he was seeking details on price-rigging and price-fixing,
particularly among brokers, agents and health care and auto insurers.
"There is mounting and important information that justifies a more
intensive investigative effort,'' Mr. Blumenthal said.
In California, John Garamendi, the insurance commissioner, said he
planned to propose a regulation today to require brokers to disclose fully
the fees they receive. The state regulation would be the first official
measure to change the way the industry operates since Eliot Spitzer, the
New York attorney general, asserted last week that incentive fees to
brokers were causing "widespread corruption'' in the industry.
Mr. Spitzer's inquiry is expanding, and investigators say they are now
looking at employee benefits and auto insurance after initially focusing
on commercial insurance. Yet while some companies that sell both employee
benefits and health insurance, like Aetna, have received subpoenas from
Mr. Spitzer, the investigation by Mr. Blumenthal appears to break new
ground by focusing directly on health coverage.
Mr. Blumenthal would not name the companies he had ordered to provide
information, but he said he was "looking for evidence of bid-rigging,
price-fixing, any anticompetitive activity'' among health insurers, their
brokers and others "and we have some evidence of it already.''
A spokesman for Aetna, David Carter, said that as of late yesterday the
company had not received a subpoena.
Concerns that regulators had turned their focus to health insurance
rattled the stock market yesterday. Shares of health insurers tumbled: the
UnitedHealth Group fell more than 9 percent, to $66.50; Aetna fell 12
percent, to $86.17; and Cigna fell 10 percent, to $59.73. Share prices of
big insurance brokers also continued their slide. Marsh & McLennan
fell another 5.7 percent yesterday, closing at $24.10. Marsh's stock price
has plunged 48 percent in the four days since Mr. Spitzer announced a
lawsuit against the company. Shares of Marsh's rival, Aon, fell 9.7 percent, to $19.20. The leader of
the insurance industry, the American International Group, also fell, leading
the Dow Jones industrial average lower. Shares of A.I.G. fell 3.3 percent,
to $57.70.
Incentive fees to brokers, called placement service agreements or
contingency fees, are at the heart of Mr. Spitzer's suit. Last week, Marsh
said it would halt such payments, and two insurers, A.I.G. and Ace of
Bermuda, said they would no longer be party to such arrangements.
But state laws and regulations are vague or silent over whether such
payments for volume and profitability are legitimate. Mr. Garamendi's
proposal, which must undergo a public hearing and review by California's
Office of Administrative Law, would require brokers "to disclose all
material facts surrounding the broker's receipt of income from a third
party.''
Until Mr. Spitzer's accusations, Marsh and other brokers had reported
on their Web sites that they received payment from insurers, but they
provided no details. Some brokers said they would give more information if
asked, but some corporate customers said that even then they received few
details.
The avowed role of a broker is to provide the best coverage for
corporate customers at the best price. In exchange, brokers receive a fee
or commission from the corporate buyer of the insurance. Mr. Spitzer was
led to investigate after a phone call last spring that raised questions
whether payments to brokers from both sides of a deal represented an
inherent conflict of interest.
Both Mr. Blumenthal and Mr. Garamendi said the investigations they were
conducting separately into corruption in the industry had expanded and
accelerated since Mr. Spitzer's lawsuit and the arrests of three industry
executives.
"Unfortunately, the indications are that these practices are more
widespread and pervasive than anyone could have guessed,'' Mr. Blumenthal
said. "We started with property and casualty insurance and we're now
expanding the focus to health insurance, employee benefits and auto
insurance.''
An insurance executive who worked for seven years as a sales executive
for the Unum Life Insurance Company of America and Zurich Insurance said
it was "standard practice'' in the health insurance and employee benefits
businesses for brokers to ask for fake bids and for insurance companies to
supply them to make corporations believe that insurers were vying for
their business.
The executive, Brent Bannerman, who is now an executive at an insurance
Web site near Boston, said of the brokers: "They would ask us to bid, but
they would always tell us we were not going to get this account - but just
give us a number so we can fill it in on the spreadsheet.''
Insurance company executives, he said, would provide false bids even
when they knew they were not getting the business "in hopes that you would
get a favor back from the broker later on.''
While not everyone in the business participated in sham bidding, he
said, "it was a widespread, standard practice.''
Mr. Bannerman left insurance sales four years ago to found his Web
site, IE-Engine, which is used by corporations buying health insurance and
employee benefits. The site is designed to help customers and buyers see
how bids are developing. So far, Mr. Bannerman said, less than 1 percent
of the market uses the Web site.
In California, Mr. Garamendi said he was also considering lending his
support to a lawsuit brought by consumer advocates, accusing a national
broker in San Diego and three big insurers of working together to cheat
corporations that buy such employee benefits as life, disability and
accident insurance for their workers.
Doug Cox, the chief executive of the brokerage, Universal Life
Resources, a leader in employee benefits, denied in a statement that his
company had received kickbacks, adding: "U.L.R. has done nothing wrong and
has nothing to hide.'' Cigna, one of the insurers named in the suit, did
not return a call seeking comment. Prudential, another of the companies,
refused to comment. John Calagna, a spokesman for MetLife, said, "We will certainly vigorously
defend ourselves.''
Mr. Calagna said MetLife, one of the biggest employee benefits
insurers, had received four subpoenas from Mr. Spitzer, most recently in
mid-September. He said the latest ones raised questions about fictitious
bids. "We did not find any evidence of MetLife being involved in this
fictitious bidding situation,'' Mr. Calagna said, "and our internal
investigation and review is continuing.''
Mr. Calagna said MetLife paid $25 million to brokers "for getting us
business'' in 2003 but he said he considered that an "insignificant
number'' when contrasted against the company's $9 billion in employee
benefits sales that year.
