Insurance Commissioner Answers Her Critics

Some Want Cogswell To Play A More Proactive Role In Industry Scandals

November 28, 2004
By Diane Levick, Staff Writer
Hartford Courant

As charges of bid-rigging and conflicts of interest shake up the insurance industry, Connecticut insurance Commissioner Susan F. Cogswell hasn't found any such corruption here. She isn't digging for it, either.

Cogswell said she isn't doing her own investigation because she hasn't received a single complaint about broker commissions or fraud, despite widening probes that are scandalizing the industry.

Instead, she said her most effective role is to work with other overseers of the state-regulated industry on new requirements for disclosing the compensation paid to agents and brokers.

Cogswell's approach contrasts sharply with that of attorneys general in Connecticut and other states - and some other states' insurance commissioners - who took a cue from New York Attorney General Eliot Spitzer and began their own investigations.

Cogswell's performance, like that of other insurance commissioners, is under increased scrutiny as attorneys general and consumer advocates around the nation blame lax state regulation of the industry for allowing fraud to fester.

Spitzer already has sued two insurance brokers, implicated several insurers and arrested some insurance company executives in his probe, and promises further action. His lawsuits and others allege that brokers steered customers to insurers who paid the best bonus commissions. These commissions are paid to brokers and typically are based on the volume and profitability of the business placed with an insurer. Insurers are accused of providing bogus bids to enable the steering, or of helping to conceal the bonus payments from customers.

Connecticut-based companies such as The Hartford Financial Services Group, Aetna, and CIGNA are among the insurers implicated in the suits.

Cogswell said the antitrust and fraud allegations surfaced in October with the filing of Spitzer's first suit. For months before that, she said, she had no reason to believe the investigations focused on anything other than inadequate disclosure of commissions.

Cogswell's supporters are standing by her as the industry investigations spread. They give her high marks for treating insurers and consumers fairly during her 4-year tenure. Her department has quietly fined companies and agents for various missteps and recovered millions of dollars for consumers in coverage disputes.

But some critics say her failure to mount a more proactive response to the current controversy is an example of her reluctance to regulate aggressively an industry that touches nearly every consumer and gave Hartford its "insurance capital" identity.

Cogswell, 51, who left her last job in the insurance industry 11 years ago, rejects the charge. She describes her current job as a "balancing act" between consumer and industry interests.

"My job is to make sure that there's a vibrant insurance market out there for Connecticut consumers" so they have a choice of companies and policies, and "then to make sure they're fairly treated," she said.

Cogswell, who first heard about Spitzer's probe in April, said the level of seriousness changed when he announced a bid-rigging investigation in October. With that, the probe "went from that investigation of lack of disclosure to racketeering and steering, which no one is going to condone and everybody wants to see punished," Cogswell said.

In response to the probe's new direction, Cogswell said she and other states' insurance regulators decided to tackle the controversy by working with a task force of the National Association of Insurance Commissioners. The task force is developing a model law on the disclosure of commissions.

In addition, Cogswell is participating in the association's plan to send form letters to insurers and brokers, inquiring about commission arrangements and companies' internal investigations.

Connecticut Attorney General Richard Blumenthal asked Cogswell in May to join him in sending letters to brokers inquiring about commissions, and said she showed "a high degree of caution and perhaps reluctance to investigate." The letters, drafted by his office and reviewed by hers, were mailed in August.

"Over the course of June and July, her reaction was extraordinarily cautious," Blumenthal said, "with objections about the need to consult with other insurance commissioners, questions about her authority to issue letters or investigate and resources to review the information."

Cogswell responded: "I honestly don't understand where Blumenthal's comments are coming from."

She said she agreed to the letter idea from the start, had no question about her own authority and just wanted to talk with New York regulators about the scope of their joint investigation with Spitzer.

Though Cogswell and Blumenthal voiced some annoyance with each other over their dealings, both say they are committed to a working relationship.

Cogswell described her reaction to Blumenthal's inquiry as appropriate, because at that time the Spitzer probe appeared to be focused on the failure to disclose commissions. New York requires disclosure, but Connecticut has no such law, so she saw no reason to investigate.

In addition, Cogswell said that when Blumenthal proposed sending letters to brokers, he told her he had not received any complaints about commissions.

Blumenthal said that "we're talking semantics here" and that sources in corporate management and the industry had come to him already, raising questions with "very troubling" information.

More recently, Blumenthal has subpoenaed at least 29 insurers and 14 brokers for details on bonus commissions, bid-rigging and other matters.

He, Spitzer and others are concerned that abuses such as bid-rigging are encouraged by the common system of bonus or "contingent" commissions.

Cogswell sees disclosure as the solution. "I don't think there's a reason to destroy the whole system if it's being told to all levels of insureds that `this happens and this is how I get paid,'" she said.

Meanwhile, Cogswell did not ask representatives of agents and insurers about bid-rigging when she met with them Nov. 3, and scoffed at the idea that she should have. Pressed further, Cogswell blamed Blumenthal's presence at the meetings for having "dampened" the conversation. She said that industry officials "weren't about to talk about anything with him there," and that they would have been more open with her and her staff alone.

On the other hand, Tom Bivona, president of the Auto Body Association of Connecticut, said he believes the industry is too comfortable with Cogswell and her department.

"I believe they're biased toward the industry," said Bivona, whose association has been fighting with the state insurance department over how insurers pay body shops and steer policyholders to certain repairers. Several months ago, the association urged Gov. M. Jodi Rell to fire Cogswell from the $117,669-a-year position.

Cogswell disputed accusations that her department's funding by insurers, hiring of many examiners with an insurance background, or her own work for two insurers many years ago results in favoritism for the industry.

"How do you know enough about insurance to regulate it if you haven't had some experience?" Cogswell asked. "I do what I think is fair for the companies and the consumers."

As insurance regulators go, Cogswell is "middle of the road," said J. Robert Hunter, insurance director for the Consumer Federation of America and a former Texas insurance commissioner. "She doesn't stand out as being particularly bad, but she doesn't stand out as being particularly good."

Cogswell, though, is well respected by fellow regulators and industry officials, who praise her integrity and professionalism. One former employee recalls Cogswell working long hours and taking work home.

"She understands the complexity of insurance issues and is very creative in identifying methods and solutions to insurance concerns," said M. Diane Koken, Pennsylvania insurance commissioner and president of the National Association of Insurance Commissioners.

Cogswell and her department even draw praise for responsiveness and accessibility from the Connecticut Trial Lawyers Association, despite some disagreement over malpractice reform and clashes over malpractice insurance rate increases.

Dismissing charges she's soft on insurers, Cogswell said she has helped get new pro-consumer laws passed, some of which insurers opposed. That legislation included bringing under her department's regulation companies subcontracted by insurers to manage prescription drug, mental health and other benefits. Another new law raises the caps on potential life insurance payments by a state guaranty fund when an insurer fails.

The state's "external review" program for health insurance disputes has been opened up to allow reviews of denials of more kinds of services. And the insurance department now regulates "senior settlements," protecting older consumers who want to sell their life insurance policies for cash to firms that specialize in the practice.

In addition, the department has recovered more than $10.1 million for consumers in less than two years after investigating disputes with insurers. Cogswell said she has intervened personally to help consumers.

Cogswell's department typically levies more than $1 million in fines each year against companies and agents based on "market conduct" examinations, which check whether they are treating customers right and following the laws. Yet she rarely publicizes the efforts, unlike the politically ambitious Spitzer and Blumenthal, who court the news media.

It's not that she's trying to save insurers from embarrassment, she said. "I know what kind of job I do and my staff does, and I don't do it to make myself look better."

But with allegations of wrongdoing swirling about the industry, Cogswell could take a tougher stance, said Tom Swan, executive director of the Connecticut Citizen Action Group.

"I think that the recent disclosures around corruption in the insurance field present a very important opportunity for her to step up and play the role of the regulator she is supposed to play," he said.

Copyright 2004 The Hartford Courant