An investigation into the insurance business is expanding, investigators said Monday, as Eliot Spitzer, the New York attorney general, increasingly turns his attention to whether US corporations and their employees are paying more for life, disability and accident insurance than they should be.
In California, John Garamendi, the state insurance commissioner, said Monday night that he, too, was concerned about extra costs to individuals for life, disability and accident insurance and that he was considering legal action against at least one broker and several insurance companies that sell what are known as employee benefits.
While the current focus of the New York investigation is on bid-rigging and price-fixing among commercial insurance brokers and insurance companies, investigators say Spitzer is also pursuing reports of payoffs that may increase coverage costs for tens of millions of people across the country.
"Eliot Spitzer's interest is in the retail stuff, the effect on regular people," said David Brown, the chief of the state attorney general's investment protection bureau.
"Our investigation is broadening and deepening," Brown said.
The insurance scandal became public last week, when Spitzer sued Marsh & McLennan, the world's biggest commercial insurance broker, accusing the broker of rigging bids from insurance companies and fixing prices for corporate customers in exchange for fees from the insurance companies.
But there are other potential conflicts of interest in insurance that may have a more direct effect on consumers. Investigators in New York and California are now examining whether brokers and consultants are demanding extra fees for favored treatment in the sale of employee benefits like group life and disability coverage.
The role of insurance brokers is to obtain the best coverage for corporate insurance clients at the best price in exchange for a fee. They are supposed to deal with insurance companies at arms-length. Long ago, however, they began collecting fees from the other side of the deal, from the insurance companies, creating a conflict of interest, some industry experts said.
In the field of employment benefits, a widespread form of payment is a reward to the broker or consultant from an insurance company for a certain volume of business and for business that is expected to have few claims and therefore be especially profitable.
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