In the wake of this week’s New York insurance industry scandal involving alleged kickbacks to insurance brokers, Secretary of State Matt Brown is pressing the Department of Business Regulation to investigate “immediately” whether such practices are also taking place in Rhode Island.
But DBR Director Marilyn Shannon McConaghy said her department is, in fact, already working on the issue – just not with Brown.
“He’s had no contact with us, and we’ve been working on this daily,” she said. “We’ve been working very closely with the National Association of Insurance Commissioners, … which is setting up a plan with all the states that will address it in a very orderly, professional fashion.”
The DBR’s point person on the issue is Joseph L. Torti III, the insurance superintendent, McConaghy said.
Brown, who issued a news release mid-afternoon Friday, said he would propose legislation to prohibit insurance industry kickbacks called “incentive fees” and require full disclosure of all fee arrangements with insurance carriers. In addition, he said, he will resubmit legislation to create an independent insurance commissioner position.
“Rhode Islanders need to know if the improper insurance industry practices taking place in New York are also happening here,” Brown said. “These incentive fees increase the cost of insurance, steer consumers to insurance plans that are not in the best interest of the consumer, but rather are the best financial deal for the broker, and hurt competition.”
Many people and businesses get their insurance through agents who openly sell policies for specific carriers. Independent brokers, however, are supposed to help clients find the carrier who will give them the best value.
This month, New York Atty. Gen. Eliot Spitzer set off what has become a nationwide investigation of insurance brokers after he accused Marsh & McLennan, the world’s largest broker, of taking improper “incentive fees” from carriers to whom it steered business. Marsh & McLennan allegedly received $843 million in incentive fees last year and AON, another large insurance broker, received $200 million.
Last week, John Garamendi, the California insurance commissioner, proposed new rules prohibiting brokers from steering business to insurers based on the size of commissions as opposed to the best interests of customers and requiring brokers to disclose “all material facts” regarding the fees they receive from insurance carriers, and is preparing a lawsuit in connection with the bid-rigging and price-fixing schemes.
In Connecticut, Atty. Gen. Richard Blumenthal has issued 35 subpoenas to insurance companies and brokers, starting roughly a week ago, focusing “on potential bid-rigging and price-fixing that may stifle competition and raise costs of insurance.”
In addition to calling on DBR to take immediate action, Brown also proposed two reforms to ensure that these types of practices do not occur in Rhode Island: prohibit “incentive fees” and require full disclosure of all fee arrangements with carriers, and create an independent insurance commissioner position to oversee all segments of the insurance market, not just health insurance. Brown proposed the latter in the last legislative session, but the General Assembly created the position only for health insurance.
