Not Spitzer's Job

Wall Street Journal ^ | October 22, 2004 | ALAN REYNOLDS

[OESY]

...Eliot Spitzer divines such a "conflict" in the fact that insurance companies pay "contingent commissions" to brokers who bring them new business or get clients to renew policies. As in previous Spitzer cases, this one began with a press release citing snippets from one company's e-mails.... And as with previous Spitzer press releases, the media dutifully described the New York AG's unproven charges against a few as industry-wide "scandal." CBS Marketwatch spoke of contingent commissions being "at the center of a growing scandal in the insurance industry."...

Allegations of inadequate disclosure of the terms of commission agreements could be easily remedied if valid. Yet Mr. Spitzer demands "major corrective action and reform." He wants insurance brokers to stop collecting fees from sellers, although such an unlegislated "reform" would require larger fees from buyers. A few insurers mentioned in the complaint have said they'll stop paying such fees. But that may be bad news for those insurers and their clients, since these commissions, like other market arrangements, came into being for a reason. Contingent fees are often based on the profitability of the business, so that brokers who keep bringing high-risk clients to insurers will not be rewarded for doing so. Contingent fees for renewing policies also provide a clear incentive for brokers to keep clients satisfied. Business insurance can be custom-tailored, so policies do not compete on price alone....

The serious charges involve bid-rigging -- collusion to make sure a favored company isn't underbid. This supposedly resulted in "elevating the price of insurance for every policyholder."....

Mr. Spitzer has no authority to dictate how insurance brokers are paid. Improving disclosure is unobjectionable, but meddling with market-based incentive schemes is risky. If New York's elected legislators want to ban this variety of sales commissions, that's their business....

[OESY]

Mr. Reynolds is a senior fellow at Cato

[LowCountryJoe]

Elliott Spitzer is one of the most dangerous politicians to the American financial and security markets. I only wish this were hyperbole on my part. Unfortunately I'm not exaggerating.

[t_skoz]

Here in NYS we hate Elliot Spitzer so don't worry.

He is dispicable. I think he's trying to be the next Chuck Schumer or something.