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Karin A Fleischhaker-Griffin

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· The Dance of a Lifetime

· Those of Us On Earth- The New Arrivals

· The Savvy Businessperson's Guide to Property & Casualty Insurance

Short Stories
· A Small Town Girl - Part One

· A Small Town Girl - Part Two

· A Small Town Girl - Part Three

· A Small Town Girl - Part Four

· A Small Town Girl - Part Five

· A Small Town Girl - Part Six

· A Small Town Girl - Part Seven

· A Small Town Girl - Part Eight

· A Small Town Girl - Part 9


· How A Factory and a Bottle of New Skin Ruined my Career

· November 6 2012 - You have Lost

· My Daughter Tamara

· The Overview Experience produced by Story Musgrave


· Cutting Foreign Aid and Drill Baby Drill


· England's Health Care is lower Want lower Costs in the US




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· Merlin in Modern Times

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· Death should be a time of mourning

· An Ode to Aric who we loved greatly

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Insurance Industry Investigation
By Karin A Fleischhaker-Griffin
Last edited: Wednesday, October 18, 2006
Posted: Sunday, October 08, 2006

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Recent articles by
Karin A Fleischhaker-Griffin

• How A Factory and a Bottle of New Skin Ruined my Career
• November 6 2012 - You have Lost
• My Daughter Tamara
• The Overview Experience produced by Story Musgrave
• Cutting Foreign Aid and Drill Baby Drill
           >> View all 29
Is NY Attorney General Eliot Spitzer out to make a name for himself by taking advantage of Insurance Industry's beleaguered situation?



Shown below is an article printed in the Minneapolis Star and Tribune.   Having been employed by the St. Paul Companies and having written considerable volumes of business with the Travelers, this entire investigation by New York State Attorney General Eliot Spitzer, in my opinion is a crock.  It appears that Mr. Spitzer wishes to make a name for himself at the expense of the insurance industry, which has suffered enough based upon national disasters, 9-11, construction defect claims and the loss of adequate re-insurers.

The St. Paul Travelers writes insurance world wide and has assisted the public in the aftermath of natural disasters by their continuance in writing insurance.  For instance, in Florida they have filled a gap by writing builders’ risk policies for joisted masonry dwellings under construction.  Many insurers refuse to write joisted masonry buildings and it appears the Travelers filled a gap to assist the public.  Yet, even though the builders risk policies may have been profitable, with suits of this nature, there is reason to move out of the areas with a greater probability of loss into business which is more profitable.  As the marketplace becomes tighter with fewer insurers, the residual market again must fill in the gaps at higher costs.

Usually the top insurance agencies/brokers such as Brown & Brown, Marsh & McLennan Companies, AON, and Willis Corroon handle larger domestic, national and multinational accounts which rely on the many professional services offered by these agencies.  These agencies/brokers review their clients’ entire business portfolio and provide competitive programs, assisting in the elimination of many exposures to an unforeseeable loss by insurance and risk management.   The organizations consist of many insurance professionals who provide valuable services and creative and analytical solutions to a diverse group of clientele.

Once a submission is made by an agency to an insurer, the underwriter provides the final decision as to whether the insurer may be willing and able to write the insurance requested.    An underwriter may decline offering a quotation based upon a poor loss history or other underwriting criteria that does not fit the company’s overall goals.  Yet, it is because of the combined resolutions of the professional agencies/brokers and the underwriter which allow the placement of many marginal risks on the insurer’s books.  The solutions may consist of a loss control program, retrospective rating or other programs which assist the retention of business in the primary, non-residual markets.  These programs, once implemented, may also reduce losses and increase the Insureds bottom lines.

When is the last time, you have received an actual proposal, listing the coverage provided in detail, and suggestions relating to what may be done to eliminate exposure to loss?  Not only should a detailed proposal be provided, but there should be constant written and verbal communication to assist an insured in their every requirement during the year.  

This article is not meant to criticize mid-sized and smaller agencies.  In the case of a suit, size generally matters and most suits are taken against the larger professional agencies, companies and brokers.   Most mid sized and smaller agencies do not have the resources to analyze the needs of the larger client.  In fact, many do not employ professionals on staff to accomplish the analysis of loss exposure and do not have the experience to determine the overall coverage required, nor the insurers to insure the exposures.  Some of these areas may included but are not limited to such areas as ocean marine, protection and indemnity, aircraft, three line retrospective rating, motor truck cargo or professional and pollution risks.  Sometimes there is even a lack of familiarization with bonds and contract requirements.  The importance is placed usually on price, price, and price.  There is little or no concern as to the financial stability of the insurer (securing a Best’s rating) nor other criteria which may affect the future solvency of an Insurer, nor is it noted from the various proposals received that the proposal with the lowest cost may include numerous gaps in coverage from what you, the insured may have previously enjoyed.   Yet a niche is filled in the world of Businessowners, Homeowners, and Automobile and with more standard lines of coverage.

All Insurers wish to write clients who have excellent loss ratios, less hazardous products or services and the ability to implement a loss control program.  For those Insureds which do not fit a specific niche, the large agencies and brokers usually have the expertise to assist in the placement of such difficult risks.   Additionally, specific programs have been created by these agencies/brokers which are not available in the general marketplace.

All Insurers require a specific volume of business be written annually by the agencies which represent them.   With the advent of computerization and with the ability to write policies on line, policy commissions paid to agencies have been reduced.   Contingent Commissions are merely bonuses paid to agencies for placing “profitable” business.   If the business placed is not profitable, there are no contingencies forthcoming.   One must then ask why the attorney general’s office has determined that bonuses may not be paid by an Insurer to agencies for the placement of profitable business.  Does this mean that in the future no bonuses may be paid to anyone in the course of employment or to an independent contractor for a job well done or for client referrals?      This is not unlike other businesses and industries and bonuses are not rebates or twisting practices which are against the law.

Let’s further discuss the statement that the St. Paul wished to increase the client’s premium by 40% for excess insurance.  What portion of that 40% increase appertained to reinsurance.   Reinsurance treaties, as well as those non-treaties (facultative reinsurance which must be negotiated separately for each specific risk) constitute a great share of all recent increases in premium.  There are fewer re-insurers and less capacity.  Notification of that increase obviously was provided in accordance with the statutory requirements.  The article did not state as to whether other excess insurers may not have been willing or able to provide the same coverage which existed or which may have been required by the client in the conduct of his or her business.  Again, full blame was placed on the agency, when the only fault may have been a lack of communication to the client as to why election was made to retain the existing excess insurer. And, this would not deter the client from contacting another agent.

Underwriters receive many applications in a given month for new and renewal business.  This business is reviewed, rated and proposed to the agent.  Yet, it is a common practice (similar to that of a good salesperson) to stipulate, “If I go through the process, do I have a chance to write this business?”   Every salesperson qualifies a buyer.   No underwriter wishes to expend valuable time and expertise to provide quotations to those risks which will never be written by the Insurer he or she represents.  This type of yearly marketing will certainly secure a declination immediately. 

A determination is also made of the program currently provided and whether the Underwriter may be able to provide similar terms and coverage.  The inability of one underwriter to provide the type of coverage or terms currently enjoyed by an Insured is another reason for declination, as is the willingness and ability to provide the same coverage at a like price  Loss ratios based upon frequency and severity and the overall financial picture of the client are also taken into consideration.

 Because Agencies may be persistent to secure alternate quotations, an underwriter who has qualified the chances of writing a specific piece of business, year after year may state, “If your current insurer increases their pricing by 60%, we may be able to provide the program at possibly a 40% increase but some of the terms may change.  Otherwise, we would not be interested because we have provided loss control and have quoted this risk yearly.”

And let’s not forget the areas of auditable exposure. The overall cost may not be the best value of all proposals received.   The rates per $100-of-payroll or $1000-of-sales may be higher than those of another carrier.  Yet, if the actual rates are not provided in the proposal along with a comparison of the terms offered, you would be prone to purchasing the lowest cost policy.  Since most property and marine lines are not auditable, rates must be provided on all auditable exposure so that a comparison may be made by the buyer.  The larger agencies/brokers provide such comparisons and make recommendations based upon the client’s needs.  Do you receive rates from your agent?  Does he just apprise you that he has taken care of you?  If this is acceptable, you may very well have multiple surprises in the event of a loss or suit.   


The premium for excess coverage, listed in the article below, may have been non-auditable with other insurers requiring the premiums be subject to audit.  Excess Premiums generally increase if the primary coverage increases whether or not the excess policy is auditable.  There may be many reasons for not marketing a piece of business in spite of a notification of increase in premium. 

And, last but not least, there is much to be said of the client who has been loyal with an insurer or agency.  In the event of a loss, more consideration may be taken to assist the loyal client in grey area situations. 

And, everyone wonders why their premiums are increased and why more insurers have removed themselves from the many lines of insurance they previously entertained.  Laws are extremely important to protect the members of the public, but the information relayed in this article appears that the attack on larger insurers and agencies/brokers may be a “witch hunt” to secure additional funds by an over-zealous attorney general.   We need to look at why an attorney general will punish those in the insurance industry for handling business in a manner usual to other businesses practices (i.e. paying bonuses based upon profitability).   Why, also, are the large agencies/brokers and companies chastised for practices which are common to the insurance industry as well as other industries (qualifying clients).

Kathryn Weiss


St. Paul Travelers to pay $77 million
Thomas Lee, Star Tribune

The St. Paul Travelers Companies Inc. will pay three states $77 million to settle charges that it defrauded businesses by scheming to fix prices and by paying undisclosed commissions to brokers to win insurance contracts. It is the latest high-profile settlement concerning practices that once were common in the insurance business.

The settlement is the result of a two-year investigation by New York State Attorney General Eliot Spitzer, who has wangled more than $3 billion worth of fines and restitution from the nation's top insurance companies -- including Marsh & McLennan Companies, Zurich Financial Services AG and American International Group Inc.

Under the agreement, St. Paul Travelers, the second-largest business insurer in the country, will pay $37 million into a fund for policyholders, plus $40 million to Connecticut, Illinois and New York. By comparison, the largest fine levied by Minnesota against an insurance company was $2.5 million. Last week, the St. Paul-based company took a $42 million charge to second-quarter profit to help pay for the settlements.

"The fine won't cripple St. Paul Travelers, but it's not trivial," said Donald Light, a senior analyst with Celent, a Boston-based research and consulting firm.

Without admitting it violated any laws, St. Paul Travelers agreed to apologize for its conduct.

"St. Paul Travelers acknowledges that certain of its employees violated certain acceptable business practices and [the company's] own standards of conduct by engaging in improper bidding practices and certain ... activities," the insurer said in a prepared statement. "St. Paul Travelers apologizes and has enacted business practice reforms to ensure that these incidents do not occur again."

The settlement covers actions of the St. Paul Companies Inc. and Travelers Property and Casualty before the companies merged in 2004. The charges focused on two practices, known in the insurance industry as "bid rigging" and contingency commission payments.

In bid rigging, insurers offer a company artificially high bids to help a broker steer the business to a preferred client.

For instance, in June 2003, a client of the St. Paul wanted other firms to bid on its excess casualty coverage. The St. Paul wanted to raise the client's premiums 40 percent. Marsh & McLennan, which brokered the deal, asked other insurance companies to submit phony bids that were significantly higher than the St. Paul's, so it would appear that the St. Paul's offer was the best deal.

"Despite the wishes of the client, Marsh had no intention of opening St. Paul to competition," according to court documents.

State regulators also accused the St. Paul and! Travelers of paying insurance brokers payments, known as contingency commissions, if they sent business their way. Spitzer argued that the companies should have disclosed the payments to customers. In essence, brokers violated their duty to customers in order to generate more commissions, he said. According to the settlement, St. Paul Travelers will stop paying commissions on excess casualty coverage through 2008. The company also agreed to support legislation that would ban such payments to brokers and agents.

But Light, of Celent, doubts such legislation will pass because contingency commissions are ingrained in the industry.




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Reviewed by Elizabeth Taylor (Reader) 10/8/2006
Good article. My experience with insurance agencies has been that they are all crooked. More so when there is a natural disaster. Just ask anyone in New Orleans or Florida.

Reviewed by Hanley Harding 10/8/2006
Dear Kathryn; Hell of an article. I've always wondered -- in the back of my mind -- whether Eliot Spitzer was sincere or climbing the political ladder by any means...

Reviewed by m j hollingshead 10/8/2006
well done

Books by
Karin A Fleischhaker-Griffin

Those of Us On Earth- The New Arrivals

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The Dance of a Lifetime

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The Savvy Businessperson's Guide to Property & Casualty Insurance

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