Not in our house

When New York Atty. Gen. Eliot Spitzer filed his most recent headline-grabbing charges on Oct. 14, he created waves in yet another industry – insurance.
However, because the insurance industry is such a prominent, competitive and well-regulated sector in Wisconsin, the state may be insulated from the types of scandals Spitzer has alleged in New York, according to state government and insurance officials.
Spitzer first received national attention for his crackdown on improper trading by mutual fund companies, including Menomonee Falls-based
Strong Capital Management.
Now he has accused New York City-based Marsh Inc., a national insurance brokerage firm, of rigging bids submitted to clients seeking insurance by providing them with false quotes, which were, at times, obtained with the assistance of large national insurance companies.
Spitzer also alleges that the company, through the false bidding process, directed business to insurance carriers that gave Marsh favorable contingency commissions.
The allegations have prompted investigations by regulators in at least 10 other states, including Illinois, Minnesota and Ohio.
Eileen Mallow, deputy commissioner with the Wisconsin Office of the Commissioner of Insurance, said her office has not launched an investigation.
The state office has not received any complaints from consumers or industry insiders, Mallow said, which would prompt it to launch its own investigation.
"If we get a complaint, we’ll
investigate," she said. "That doesn’t mean we wouldn’t start an investigation without one."
However, the Wisconsin office is part of the National Association of Insurance Commissioners, which is conducting its own investigation into Spitzer’s accusations. Ken Riesch, president of Waukesha-based R&R Insurance Services, Inc., said his company has made sure all of its agents are well-versed in the Marsh case, so they can answer questions clients might have. Those clients have only asked a handful of questions about the Marsh case so far, he said.
"We will have to respond in some shape or form," Riesch said. "Every agent has to be conversational in the story so they can talk about it."
Although the Marsh case has grabbed some national headlines, Riesch said the highly competitive market in Wisconsin among locally based insurance agents, brokers and carriers would make it unlikely a similar scandal would develop here.
Marsh was able to create the scenarios in which it is accused of creating rigged bids because it is one of only a handful of national insurance brokers capable of handling such large national accounts, Riesch said.
Because of the large number of local agencies, insurance providers and consumers in Wisconsin, Riesch said, a Marsh-like scandal would be unlikely, due to the competition.
"When you look at how this happened, there was secrecy," Riesch said. "The fewer number of parties you have involved, the easier it is to keep a secret."
Because the vast majority of the state’s insurance business is done through agents, rather than brokers, a Marsh-like scenario is unlikely here, according to Eric Englund, president of the Wisconsin Insurance Alliance, a statewide group that represents the property and casualty insurance industry.
"The vast majority (of insurance business) is through agents, who don’t have a contractual relationship with the insured," Englund said.
Englund also noted that Wisconsin law requires agents and brokers who are being compensated by both the purchaser and insurance carrier to disclose that relationship to both sides.
Wisconsin also has an intangible that discourages improper practices, Riesch said.
"The values in this state are well above the norm," he said. "Integrity is the key to doing business in this state among agents or brokers, insurance carriers and customers. If there’s a concern among independent agents, it’s because what we’ve worked so hard for may be broad-brushed by the attorney general of New York."
Diversified Insurance Services, a Waukesha-based insurance brokerage firm, has not received any questions about the Marsh allegations, but the company has sent a letter to clients about the case, according to James McCormack, chairman of the firm.
In that letter and in an interview with Small Business Times, McCormack said that although his company makes a significant portion of its profits through contingent commissions, its business practices are so different than Marsh’s that it could not be part of a similar scheme.
"Most agencies are self-policing – agents get no piece of a shared
commission," McCormack said.
McCormack also said Diversified’s brokers are never told about those commission relationships, so they have no specific knowledge of what the company may receive in return for contract placement.
Those commissions are rolled into the company’s overall budget and are never tied to a broker’s paycheck, McCormack said.
McCormack said he is hoping his open letter will answer any lingering questions, and he invites concerned clients to contact Diversified’s Waukesha office.
"We want to be proactive. Most of our clients are long-term," he said. "We’re inviting them to come in, look at any compensation we have. It’s a matter of trust. Marsh broke that trust."
Both McCormack and Riesch said Spitzer’s investigation into Marsh’s practices could have some fallout in that may be felt in Wisconsin. The insurance industry might increase the level of disclosures it gives to clients, or more federal oversight could be enacted, they said.
"The fear I might see with the Spitzer complaint is that you may get more federal involvement in the insurance industry," Riesch said. "We have plenty of regulation in the state of Wisconsin. The state commissioner does an excellent job regulating."
Connie O’Connell, an attorney in the Madison office of the Godfrey and Kahn law firm and former Wisconsin insurance commissioner, said she is watching the reactions of state and federal regulators to the Marsh case.
"I think there is going to be a
coordinated examination of the issue by commissioners across the country, and there are a number of possible scenarios that could come from that," she said. "States may look at a coordinated examination of activities or they may look at strengthening disclosure requirements."
O’Connell said Wisconsin has historically been effective when dealing with issues in the insurance industry.
"Part of that is based on the history of looking at problems from the perspective of our state and our consumers, and not overreacting to issues in other states," she said. "I expect that the Wisconsin department will take very seriously any complaints they have and will closely monitor our marketplace."
November 12, 2004, Small Business Times, Milwaukee, WI