Risk Management

New Spitzer Initiative Against Insurers

''Secret payoffs and conflicts of interest that infected the market for property and casualty insurance have taken root in the employee benefits ma...
Stephen TaubNovember 17, 2004

New York Attorney General Eliot Spitzer has expanded his probe of the insurance industry to companies specializing in life, accident, and disability insurance.

Spitzer has filed a civil complaint against Universal Life Resources Inc. (ULR), alleging that the company steered business to insurers in exchange for payoffs and that this practice raised premiums for individual employees. The lawsuit names ULR; chief executive officer Douglas Cox; and two affiliated corporations, Universal Life Resources and Benefits Commerce. In addition, the New York State Insurance Department issued citations against ULR for violations of state insurance law.

“Secret payoffs and conflicts of interest that infected the market for property and casualty insurance have taken root in the employee benefits market as well,” said Spitzer, in a statement. “What is particularly egregious in this case is that the costs of ULR’s concealed payments were ultimately borne by individual employees, who were in no position to know about or contest these illegal practices.”

The complaint alleges that ULR had secret deals with a number of large insurers — including MetLife, Prudential, and Unum Provident — under which millions of dollars were paid to ULR in exchange for steering the business of the company’s clients, according to the release.

Furthermore, alleges the complaint, ULR imposes secret, above-market fees for “communication services,” such as printing of informational materials, that employees ultimately pay through higher premiums. These secret payments accounted for more than two-thirds of ULR’s revenue in 2003, Spitzer’s office asserts.

The complaint also alleges that ULR hides these agreements from its clients by falsely representing its compensation, omitting its fees from mandatory government filings, and refusing to deal with insurers who will not go along with its concealed arrangements.

The suit seeks an end to the steering agreements, disgorgement of improper payments, restitution for injured parties, and punitive damages.

“The insurance industry has not answered some very tough questions about why premiums have been going up, about why there has been a lack of competition,” Spitzer told the Associated Press. “It may be that we are beginning to see some of the answers.”