Delaware DOI Regulators Asking Insurance Agents If They're Honest

The News Journal
December 8, 2004

WILMINGTON, DE -- State regulators are asking Delaware insurance agents to fess up if they've been engaging in illegal conduct.

In the wake of alleged industry abuses uncovered in New York, the Delaware Department of Insurance is asking more than 4,000 insurance agents and brokers whether they have been involved in similar misconduct.

The department has given all resident agents and brokers in Delaware until Dec. 15 to respond to a 5-page questionnaire asking whether they have engaged in illegal practices, including steering business to favored insurance companies in exchange for improper payments.

Agents selling all types of insurance, auto, disability, health, life and property, are affected by the department's order.

The review was prompted by New York Attorney General Eliot Spitzer's investigation of the insurance industry, not by any evidence of wrongdoing in Delaware, said Michael Rich, a deputy attorney general and the chief legal adviser to the Department of Insurance.

Spitzer filed suit in October accusing Marsh & McLennan, the world's largest insurance brokerage, of making secret agreements with large insurance companies to cheat customers. The companies engaged in price fixing and sham bidding to deceive buyers, according to the New York attorney general. Spitzer has broadened his probe to examine whether insurance companies may be paying kickbacks to independent insurance agents in exchange for business.

Spitzer's investigation has inspired other states to open their own inquiries, and regulators in most other states have sent out questionnaires similar to those in Delaware, said Rich, who expects industry representatives to truthfully disclose their activities.

"By law, you have a duty to self-disclose the truth," he said Wednesday. "If they do not, and it's later determined that they did fail to truthfully respond, the potential penalties and sanction magnify."

Rich said documents supplied by agents would be kept confidential by the department.

If the inquiry produces evidence of wrongdoing, an agent or broker could be subject to administrative sanctions by the insurance commissioner or criminal prosecution by the attorney general's office. Decisions on whether to take action against any agents likely will be left to incoming insurance commissioner Matt Denn, who won the November election and will succeed incumbent Donna Lee Williams next month.

Insurance agents were notified about the survey in mid-November, but many already have asked for extensions, Rich said.

"I think what the state is doing is a knee-jerk reaction to the Spitzer investigation," said Frank Wharton, a vice president with Zutz Insurance Group in Wilmington. "It's overkill."

Wharton, state director for the Independent Insurance Agents and Brokers of America, a trade group, said agents were upset when they received letters from instructing them to respond to the questionnaire posted on the insurance department's Web site.

The agents were ordered to turn over extensive information, including details of compensation arrangements and lists of clients dating to 1998. After agents objected, the department agreed to scale back the amount of information being sought, said Wharton.

The department is now asking agents to turn over client lists and details of compensation arrangements and other documentation only if they acknowledge they may have committed violations, or if they are subject to inquiries by other governmental agencies investigating alleged industry abuses.

Wharton said the revised guidelines ease the burden on agents, but that they still view the inquiry as an overreaction.

Copyright © 2004 The News Journal

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