Lockyer launches insurance probe

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Contra Costa Times (California)

The bid-rigging and collusion probe that has rocked the insurance industry spread to California on Friday when the state’s top prosecutor launched a formal investigation.

California Attorney General Bill Lockyer joins prosecutors in other states, most prominently New York Attorney General Eliot Spitzer, in investigating whether insurance companies and brokers are unfairly taking advantage of competitors or harming consumers when selling policies to both businesses and consumers. Lockyer could not be reached for comment.

At issue are perceived conflicts of interest when insurance companies pay lucrative incentive fees to brokers in exchange for more business. Those fees prompted the civil lawsuit Spitzer filed earlier this month against the world’s largest broker, Marsh & McLennan, alleging that these “kickbacks” drive up the cost of insurance. Spitzer’s suit spawned negative publicity and class-action lawsuits across the country, including one filed last week in San Diego against Universal Life Resources on behalf of an Intel Corp. employee.

In a written statement, Lockyer said his office would look into allegations that brokers have not adequately disclosed payments from insurance companies and placed phony bids to make customers think they were buying coverage for a fair price. He also said he would create a whistle-blower hot line to encourage insurance company employees and customers to report wrongdoing.

Last week, California Insurance Commissioner John Garamendi moved to strengthen state laws that require brokers to disclose any financial incentives they receive from insurance companies and reinforce their obligation to get their customers the best possible deal on insurance policies. He reiterated Friday his plans to bring civil charges against a number of California companies.

An insurance industry spokesman said he is confident the investigation will show that the state’s insurance brokers and companies have done nothing wrong. But Steve Young, general counsel of Insurance Brokers & Agents of the West, said he is working with Garamendi’s office to make existing laws more clear.

“There is a need for greater clarity in the law on the issue of exactly what brokers are required to disclose to customers in order to ensure that customers are fully informed before they make important insurance-related decisions,” he said.

Consumer watchdog Harvey Rosenfield alleges Spitzer’s probe merely exposed decades of corruption that plagued the industry while government regulators and prosecutors did nothing.

“My prediction is that this inquiry is going to expand to fill the vacuum left by inadequate scrutiny, inadequate enforcement of the law and inadequate regulation,” said Rosenfield, president of The Foundation for Taxpayer and Consumer Rights. “We haven’t even seen the tip of the iceberg in terms of the insurance companies’ misconduct in the marketplace.”

The foundation filed suit in San Francisco Superior Court on Friday against Novato-based Fireman’s Fund Insurance Co. for allegedly giving its agents financial incentives to deny “good driver” discounts to qualified drivers who are not in its target markets. A Fireman’s Fund spokesman said the company does not comment on litigation.

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