January 1, 2005 01:06 AM
States vs. U.S.: Who Will Police Insurance Firms?
Excerpt: Insurance has long been regulated state by state, generally by officials who are woefully outmatched in money and expertise by the companies they are supposed to oversee. But the question increasingly confronting the state regulators is whether they can transform themselves into strong, effective overseers or whether their job or aspects of it should be turned over to Washington.
In the summer of 2002, Maurice R. Greenberg, the chief executive of the American International Group, was facing problems with the brokers who sold commercial insurance policies for his company.
Marsh & McLennan Companies, the world's largest insurance broker, was making another request for higher incentive payments and wanted to expand them to additional lines of coverage. At the same time, A.I.G. was being sued in California over these incentives, widely referred to as contingency commissions.
For years, brokers had been quietly taking the commissions for increasing the sales and profits of insurance companies while promising their customers unbiased advice on coverage. But to Mr. Greenberg, the incentive payments were an irritating extra expense - ultimately passed on to customers - that he would have happily seen eliminated.
So he decided to ask the insurance regulators in New York whether the payments were proper. More than two years later, he received an answer. It came not from the New York superintendent of insurance, but from Eliot Spitzer, the New York attorney general, who sued Marsh on Oct. 14, asserting that the incentive payments constituted a conflict of interest.
Mr. Spitzer's lawsuit touched off a wave of investigations into the insurance industry and intensified a debate over the adequacy of insurance regulation in America.
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