Risk Management

Are Health Insurers Next for Spitzer?

The New York State Attorney General's new focus might reveal a connection to the recent huge inflation in health-care premiums.
Stephen TaubOctober 20, 2004

New York State Attorney General Eliot Spitzer now has the cross-hairs trained on the health insurance industry, according to The New York Post.

The newspaper reported that Spitzer — who late last week socked major brokers and insurers of commercial lines when he accused Marsh & McLennan of soliciting “rigged bids for insurance contracts” — is examining policies sold by small independent agents and offered by brokers to large corporations and cities. “Health care is clearly one of the lines of insurance that we are taking a very close look at,” a source familiar with the investigation told the paper

The effect of bid-rigging on increases in insurance premiums is at the heart of the allegations against Marsh. The Post observed that Spitzer’s new focus might reveal a connection to the recent huge inflation in health-care premiums, which has far outpaced the lowest overall inflation rate in decades.

Meanwhile, Marsh warned on Monday that its suspension of the use of market services agreements (MSAs) “will negatively impact near-term operating income.” The company suspended the practice — in which brokers would receive fees from insurance companies for steering business their way — after Spitzer’s probe was unveiled late last week. In 2003, MSA revenue amounted to $845 million, or 7 percent of the company’s total revenue of $11.6 billion; for the first six months of this year, MSA revenue amounted to about $420 million — again, 7 percent of total revenue.

On Tuesday, disability insurance giant UnumProvident Corp. announced that it had received a subpoena from Spitzer, requesting information on compensation agreements between insurance brokers and the company as well as on its quoting process. “We will further review our compensation policies and procedures to be sure that we appropriately compensate our brokers but do not create any actual or perceived conflict between the broker and the customer,” said president and chief executive officer Thomas R. Watjen in a statement. “As this review is underway, UnumProvident will not enter into any new compensation agreements until this review is completed.”

Also on Tuesday, MetLife Inc. fired off a press release noting that given its size and position in the group insurance market, “it is not surprising that the company has been included among the companies receiving investigative inquiries.” The company added that after an internal review, it had advised the attorney general that “MetLife was not aware of any instance in which MetLife or any other company had provided a ‘fictitious’ quote. MetLife is continuing to conduct an internal review of its commission payment practices.”