« Citicorp Mutual Fund Investors Paying the Price of Sanford Weill's "Meet Your Numbers" Mentality. | Main | S.E.C. Inquires Into Pension Accounting »

The Insurance Industry is in Denial: It's not "Fraud and Bid Rigging!" Let's Just Call It "Contingent Commissions."

Ahhhh yes. Evil Elliott has it wrong again!?! The insurance industiry's gross fraud perpetrated on it's clients is nothing more than a "contingent commission"...so they say. It kind of sound's like that practice we trial lawyers use to keep our clients from having to foot a legal bill they could never afford...a practice that put's the risk entirely on us. So, er uhm, maybe the insurance industry can make fraud and bid rigging sound legitimate too. But, uhm, just what risk is it they were taking from their clients, and just how does bid rigging help them? Ohh well, if the public won't buy the name, let's just deny that it's what we really do. See the article below and watch them squirm now that the cat is out of the bag. And I can't wait to see who will be the first to eat their words.

Business Insurance - Corporate Risk and Employee Benefit Management news

Problems outlined in Spitzer suit limited: Panelists

by Regis Coccia
Posted on Oct. 20, 2004 4:41 PM CST

CHICAGO—Allegations of wrongdoing in the insurance industry must be taken seriously but do not indicate a widespread problem, a panel of industry leaders said.
Speaking Wednesday at the annual Insurance Executive Forum hosted by Illinois State University’s Katie School of Insurance and Financial Services, the panelists agreed that New York Attorney General Eliot Spitzer’s recent lawsuit calls for strong action against anyone found guilty of criminal acts but does not require sweeping changes in industry business practices.
“I believe 99% of the men and women who get up to work in this industry are honest and do their best” to serve their clients and support their families, said John Phelan, chairman and chief executive officer of American Re-Insurance Co. in Princeton, N.J.
“In my view, to suggest that the sins of the few will change the world for the rest of us is utter nonsense.” he said. “There are just a handful of people, I suspect, involved in improper behavior.”

When asked about Mr. Spitzer’s investigation of “tying,” in which brokerage firms use leverage in placing reinsurance business, Mr. Phelan said, “In the real world, there’s a competitive environment. We have informed and intelligent buyers—we’re talking about the management of insurance companies. Maybe some of it goes, but is it a widespread practice, to the detriment of the buyer? I doubt it.”

Donna Galer, executive vp of Zurich North America in Schaumburg, Ill., pointed out that some observers have drawn “a very bright line between contingent commissions and the allegations in the (Spitzer) lawsuit.” She said that Zurich “wouldn’t bemoan” the end of contingent commission arrangements but added that “it’s not going to have a significant impact on any particular carrier.”

“I get worried about the knee jerk that sometimes take place in regard to legal actions,” said Charles Kavitsky, president and CEO of Novato, Calif.-based Fireman’s Fund Insurance Co. “Let’s see what else is going on….It gets lost sometimes that contingent commissions are legal.” He cited the 2003 outcry over mutual fund companies’ trading practices and pointed out that it led to questions of whether some activities, though legal, were appropriate.

“It’s a competitive industry. If a client doesn’t feel they’re getting what’s in their best interests, they’ll find another trusted adviser,” said David Eslick, chairman, president and CEO of USI Holdings Corp. in Briarcliff Manor, N.Y. “It’s a self-policing environment.”

“I’m a little bit angry that (risk managers) are going to get dragged into this debate” over contingent commissions, said Sheila Small, assistant treasurer-risk management and insurance at Verizon Communications Inc. in New York. “I truly believe that…brokers do do a service for the carrier. There is value in that. How that added service should be priced” is the question, she said. “I was under the assumption that (such broker compensation) was smaller than what’s being disclosed.”

In terms of economic impact on the insurance industry, Adam Klauber, managing director of Cochran, Caronia & Co. in Chicago, said companies named in the Spitzer lawsuit are likely to face investor suits, but “the overall business of brokerages won’t change, just the economics of the business.” (I nominate this as quote of the century...and we just started! Reed)

Paul D. Winston, editorial director of Business Insurance, moderated the panel.

References (1)

References allow you to track sources for this article, as well as articles that were written in response to this article.
  • Response
    Response: Www.Facebook.com
    The Insurance Industry is in Denial: It's not "Fraud and Bid Rigging!" Let's Just Call It "Contingent Commissions." - Investor Fraud Blog - Reed R. Kathrein

Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
All HTML will be escaped. Hyperlinks will be created for URLs automatically.