Insurance Agent Fraud

ROGUE INSURANCE agents are swindling thousands of California policyholders out of millions of dollars, and state Insurance Commissioner Chuck Quackenbush, the elected industry watchdog, is dropping the ball.

That is the essence of a three-part Chronicle series this week by staff writers David Dietz and April Lynch who exposed a variety of cruel insurance scams. Some disreputable agents sold phony policies then disappeared, others stole premiums or sold expensive policies that were not needed.

Often the victims were elderly, sick or poor, people most in need and least able to fight back against the complexities of the state's huge and prosperous insurance industry that reaps $82 billion a year in premiums.

In the arcane world of insurance, most policyholders depend on their agents to advise them on appropriate coverage. State law forbids agents from misleading clients.

But during a five-month investigation, Dietz and Lynch found that since Quackenbush was elected in 1994 disciplinary action against dishonest agents is down.

Consumer advocates say enforcement is languishing because Quackenbush is in bed with big insurance companies and agents groups, which have contributed heavily -- about $6 million -- to his political coffers.

Quackenbush denies being influenced by his donors. ``None of these people who contributed were given any slack,'' he says.

The vast majority of the 150,000 agents and brokers in California are honest, but the few hundred who are not must be tracked down and disciplined or kicked out of the business altogether.

Insurance agents who defraud their clients are white-collar thieves exploiting the public trust. Often their schemes are not discovered until tragedy strikes a policyholder who had depended on the insurance in a crisis and is left destitute.

Far too many felonious agents are getting away with their crimes or receive a mere slap on the wrist if they are disciplined at all. During the past two years, the state Department of Insurance levied fines against only one out of four corrupt agents who were caught and disciplined. The average fine was $250.

License revocations have decreased at the same time that complaints of agent misconduct have increased. The Insurance Department's enforcement figures are inflated by rubber-stamp action on minor offenses by agents while many serious complaints sit unattended, sometimes for years without action, the reporters found.

To safeguard California policyholders, Quackenbush should immediately reorganize his department, increase the number of investigators and give them more support to crack down on swindlers.

Licensing fees for agents -- currently $112 for two years -- should be increased with the additional money earmarked for enforcement. Agents caught in a fraud should be sternly disciplined and forced to reimburse the department for the costs of investigating them.

Quackenbush should support legislation to require insurance companies to tell regulators why an agent was fired and to expand the authority of investigators to give them the power to arrest errant agents.

Unless the Insurance Department refocuses its attention on protecting consumers from the chicanery of dishonest agents, thousands of policyholders will continue to be hurt; some will be ruined.

Facing re-election next month, Quackenbush should prove to voters that he is at least as concerned with rooting out crooked agents as he is with protecting insurance carriers against fraudulent claims.