Insurance Industry Panel Features Crocker

UNIVERSITY PARK, PA (January 25, 2005)—Keith Crocker, the William Elliott Chaired Professor of Insurance and Risk Management at Penn State’s Smeal College of Business, recently joined a panel of insurance industry experts to talk about New York Attorney General Eliot Spitzer’s investigation of commercial insurance brokers and the overall state of the industry.

Other experts on the panel, sponsored by Leader’s Edge magazine and featured in the January/February issue, included Robert Lieblein, founder and managing principal of WFG Capital Advisors; Scott Sinder, outside general and legislative council for the Council of Insurance Agents and Brokers; and Steve Wevodau, managing principal of WFG Capital Advisors.

Crocker has served as an expert witness in cases involving antitrust and insurance concerns, including captive taxation and workers compensation. His research interests have focused primarily on contracting issues, with a particular emphasis on the role of transaction costs, adverse selection, and moral hazard in the design of agreements.

Read some of his comments from the panel discussion.

On where the Spitzer investigation will lead: “I suspect where this story will really get legs is if the path leads into benefits, life insurance, any personal lines property-casualty areas where one can argue that not commercial but regular consumers were disadvantaged by some behavior. And that’s where you get to class action lawsuits and some serious money. If it goes down that path, this will be going on for quite a while."

On contingent commissions: “We have a situation where the potential conflict-of-interest has been there for a long time, whether this is a long-standing business practice or not. This is a train wreck that’s been waiting to happen. To be quite frank, the response by brokers is entirely appropriate because they need to be purer than Caesar’s wife from this point forward. They have lost a lot of trust, even though a very few have been engaged in this. This is very serious business. You don’t lose $10 billion worth of market capitalization unless a lot of other people think it is serious, too.

On the economic shock and its impact on markets: “I think this is going to be an exciting time with a lot of experimentation, probably in the middle markets. There is going to be a fair amount of turmoil as folks try different things. But I always thought living in interesting times was a curse, not a blessing.”

On industry reshuffling: “Right now, there are huge opportunities for brokers not named by Spitzer. Willis ought to be looking pretty good right about now. It is interesting, if you look at the stock market response to these allegations, Aon took a hit and stayed down. Marsh took a hit, stayed down. Willis took a little hit and went back up. Clearly, the markets have made some judgments about the business prospects.”

On how brokers should react: “Long term, I think pay attention to what the market’s doing. See if these other ways—other tools—are adjusting and can replace contingent commissions. I think that the stock market is very bullish on the brokerage industry as a whole.”