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Associated Press
Oct 29, 2004

by DON THOMPSON, Associated Press Writer

California joins in nationwide insurance probe

SACRAMENTO (AP) -- California's attorney general on Friday joined other states' top prosecutors in beginning a formal investigation into alleged antitrust violations, price fixing and fraud by insurance companies and brokers.

Attorney General Bill Lockyer said investigators will first examine possible bid-rigging and other alleged anticompetitive behavior.

The announcement follows an investigation launched earlier this month by New York Attorney General Eliot Spitzer, which has since widened to include other states and a broadening number of insurance companies.

"Businesses cannot conspire to give themselves an unfair advantage over competitors or harm consumers by keeping prices artificially inflated. They cannot breach their duty to tell customers the whole truth," Lockyer said in his announcement.

Spitzer initially filed suit against Marsh & McLennan, accusing the insurer of rigging bids and using incentive fees to manipulate the sales of corporate property and casualty policies, driving up business' insurance costs.

Lockyer said he's looking into allegations that companies failed to adequately disclose that they were paying incentives to brokers, and that they placed "phony bids" so businesses would think they were paying a reasonable price.

State Insurance Commissioner John Garamendi has been investigating the brokers' contingency payments, and Lockyer said his investigators will work with insurance regulators on those allegations. Garamendi has said he will sue to end the practice of accepting such payments without disclosing the incentives to clients.

Lockyer also is creating a whistle-blower hot line and e-mail address that he hopes will encourage insurance companies' employees and clients to relay information about wrongdoing.

Garamendi and other regulators and prosecutors also are beginning to examine personal insurance such as life, auto and homeowners' policies.

"The trickle-down impact is the consumer ends up paying the cost of these kickbacks or whatever," said Harvey Rosenfield, president of The Foundation for Taxpayer and Consumer Rights.

"I think for a variety of reasons the insurance industry is about to receive the kind of scrutiny they have not received in 40 years," Rosenfield said. "I think the tip of the iceberg hasn't even been discovered yet."

His organization on Friday sued Novato-based Firemans Fund Insurance Co., alleging the firm is giving its agents financial incentives to dissuade them from giving 20 percent "good driver" discounts to qualified drivers. That would be a violation of California's Proposition 103, a 1988 insurance reform initiative that Rosenfield authored.

The suit, filed in San Francisco Superior Court, alleges that Firemans Fund created "target markets," and pays incentives to agents that discourage them from submitting insurance applications from drivers who don't live within the "target markets." Rosenfield said the suit is based on a whistle-blower's allegations.

Fireman's spokesman John Kozero said he hadn't seen the complaint, and the company has a policy of not commenting on a pending lawsuit.

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