WSJ: Eliot's Insurance Policy

Wall Street Journal ^ | October 21, 2004 | Editorial

[OESY]

...Mr. Spitzer has discovered bad behavior in so-called bid-rigging by insurance brokers.... Soliciting fake bids to drive up prices is a crime, and Mr. Spitzer has already won two guilty pleas from employees of AIG. At least in this case the New York AG has charged people for breaking the law. This is a prosecutor's main duty, but in his previous financial crusades Mr. Spitzer has used public mau-mauing to scare his targets into a settlement rather than prove something to a jury beyond a reasonable doubt.

But bid-rigging aside, Mr. Spitzer's goal seems to be nothing short of altering the way insurance brokers make their money. And to do so he is portraying as "fraudulent" business practices that are long-standing and well known. State insurance regulators have known about them and declined to act for years -- in the case of New York State even after the industry requested regulatory guidance. To have Mr. Spitzer now sweep in and compare the entire industry to organized crime is more troubling than the practices he's seeking to end.

Specifically, Mr. Spitzer is attacking "contingent commissions." A few facts: Historically the insurance-brokerage business has been based on commissions of one sort or another. The most basic are "standard commissions," in which brokers get a percentage of the premium. But brokers can also receive commissions that are "contingent" on other factors, for instance the profitability of the business they drum up. Contingent commissions have been around for decades, are generally confined to insurance sales to businesses (not individuals), and are well understood by corporate customers....

Mr. Spitzer now describes all of this as a nefarious "steering" of business to certain insurers that hurts corporate buyers and results in "kickbacks" to brokers....

[OESY]

The insurance industry is well known for price
competition and revenue roller-coasters.

[Orange1998]

Two executives have already plead guilty. If they followed the rules then they would not be saying "everyone else does it so it must be ok".

The insurance industry is well known for price competition and revenue roller-coasters.

You don't really believe that.....do you?

[alrea]

Mr. Spitzer's goal seems to be nothing short of altering the way insurance brokers make their money. And to do so he is portraying as "fraudulent" business practices that are long-standing and well known

The goal is to make sure that the legal component of "cost of sales" increases. Attorneys and states are substituting themselves as an indirect tax. They are a form of bureaucracy. This is hooded socialism. They are taking property rights. States see the Microsoft type verdict as a bottomless well of revenue.

In Florida the election and democracy itself is even threatened with this substitute indirect bureaucracy. Win or loose, sue. Charge fraud if you can't fool enough voters with your socialism. It's part of the same multi-headed monster working for the common man. Marx called it something else.