Insurance companies are powerful.
So powerful that they make sure insurance regulation is perpetually weak.
It has been said that Aetna has more actuaries than all 50 state insurance regulators combined.
And, of course, there is no federal regulation of insurance.
In fact, in the 1980s, after the Federal Trade Commission did an investigation of the life insurance industry and reported to Congress, the industry was so angry that it drove a law through Congress that prohibited the FTC from ever again investigating the industry without a specific request from a Congressional committee.
“The FTC decided to investigate the life insurance business,” Joseph Belth, editor of the monthly newsletter the Insurance Forum, told Corporate Crime Reporter in an interview last week. “That was back in the 1980s. They did this investigation. They were looking at sales practices, the lack of effective disclosure of the price of life insurance — things of that kind. It is something that I have been interested in for a long time — the need to disclose the price of life insurance to buyers of life insurance. They did this investigation. And they came out with a report. And the report was very harsh, very critical of the insurance business. And the report had some recommendations.”
“The FTC filed the report at the time of a hearing in the Senate. When they filed this report, the industry went berserk. The industry managed to get a law passed that prohibited the FTC from ever investigating the life insurance industry without a specific directive from Congress.”
“As far as I know, that law is still on the books. I’m not sure the FTC, to this day, has the legal authority to investigate the life insurance industry.”
Belth has been keeping tabs on the insurance industry now for over 40 years.
In the current issue (August 2013) of the Insurance Forum, Belth penned an article titled “Mystery Payments by Insurance Companies to State Governments.”
In it, Belth lays out a disturbing practice of state insurance commissioners of settling investigations by accepting payments from insurance companies without making public allegations of wrongdoing.
“The problem probably existed before this, but I never really got into it until the situation in Georgia with Unum Corporation,” Belth recalls. “Back in 2003, I had been writing about Unum. They were engaged in claims practices in the disability insurance business which were simply unacceptable. It was really bad.”
“Georgia did an investigation. At some point, I guess it was in 2003, the Department issued an order. They called it an order. That was a public document. They put the company on probation for two years and they ordered the company to change its practices and they fined the company $1 million.”
“But in the announcement of this order, and in the order itself, there was no mention of what the company had done to earn this punishment. There were no allegations of wrongdoing.”
“I will never forget this. I called up the Georgia Department of Insurance and talked to the media person there. And it was one of those things that sticks in your mind forever. And I asked him — what was the basis of the one million dollar fine? And he said he will have to call me back.”
“The next day he calls me back. He said Joe — you are not going to like my answer.”
“I said — try me.”
“And he said — the parties agreed to the fine — the parties being the company and the Department. He was right — I was not satisfied with the reply. I wrote an article about it at the time. I filed an open records request asking for the report of the investigation. And they said the report was not yet a public document. It was not available because the investigation was ongoing.”
“I let it go at that point. I have gone to court over the years on denials of open records requests. But I didn’t in this particular case. And I just let it go. But then, there was a plaintiffs’ attorney in New Jersey, who had filed some lawsuits against Unum. And he wanted that report. And he filed a request with the Georgia Department asking for the report.
And they denied him just like they denied me. But he went to court. And it was protracted litigation. And eventually, he got the report. And of course, he immediately shared it with me. It alleged 96 violations of federal and state laws and regulations.”
“Of course, that wasn’t known until a couple of years after the $1 million fine, which was based on an agreement between Unum and the Department
Then there was the 2006 case of Coventry First LLC in New York.
“The Attorney General of New York apparently did not want to particularly go out of his way to publicize the settlement,” Belth says.
“Normally, they put out a press release. The amazing thing about this was they put out no press release. They did not post any agreement.”
“When I called up and asked for a press release, they came up with one. They might have prepared it after I called, for all I know.”
Belth heard about the case from a company press release.
“The first thing I did was I went to the Attorney General’s web site and found nothing,” Belth said. “I then called the office and that’s when they dug up the press release. I don’t think it had been circulated. And the agreement was not posted on the Attorney General’s web site. So, I asked them for a copy of the agreement. And they said — you will have to file a Freedom of Information request for that. And I must say, they got it to me fairly promptly.”
“Coventry made it clear that they had paid this $10.5 million to the state of New York. But they said it was not a fine. The agreement didn’t say one way or the other. It just said that they were going to pay the $10.5 million to the state of New York.”
Then this year, there was the case of State Farm in Indiana.
“State Farm agreed to pay $275,000 to the state of Indiana,” Belth said. “But there was no purpose disclosed as to what that $275,000 represented.”
Belth makes an analogy to bribery and extortion.
“The arrangement has the elements of either bribery or extortion, depending on who initiates the idea of the payment,” Belth says.
He makes an analogy to a driver speeding on a highway.
“You are driving down the highway 100 mph in a 70 mph zone,” Belth says. “You are pulled over by a state trooper. The trooper informs you of that and says the fine is $200. You as the driver say to the trooper — here’s the $200. I will give you the $200 on the spot here if you will just forget about writing up a ticket. And if the trooper takes the $200 and drives off, I believe that is bribery.”
“On the other hand, if the trooper says you were driving 100 mph in a 70 mph zone, the fine is $200, I’ll forget about the ticket if you give me the $200 right here. If the driver gives him the $200 and the trooper drives off, that is extortion.”
“In the negotiations of the settlement, we don’t know what’s happening. But somebody has to make the first move.”
As for Aetna having more actuaries than all 50 state insurance regulators combined Belth says — “I’ve never checked the numbers, but it’s probably true.”
What are the implications of that?
“The implications are that the companies are staffed in such a way and the insurance regulators are staffed in such a way that there is a terrible imbalance,” Belth says. “And I do believe that the state regulators are often reluctant to take on a company on something it might be doing, simply because they know that they aren’t staffed and they don’t have the resources to take on the company.”
“A lot of people say that the regulators are either bought off — or they talk about the revolving door. The regulator is a regulator for a while, then he goes back to work for the industry again.”
“But the biggest problem is the fact that the regulators don’t have the resources to take on the company.”
[For the complete Interview with Joseph Belth, see 27 Corporate Crime Reporter 34(12), September 9, 2013, print edition only.]