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Whatever general counsel may think of New York Attorney General Eliot Spitzer or the politics of his investigations into the insurance industry, it is clear that his mission, regardless of how the investigations are ultimately resolved, will have a long-term impact on how corporations purchase insurance and, very likely, the cost of that insurance. While insurance companies and brokers may be the direct focus of Spitzer and his counterparts in numerous other states, the effects of these investigations will cut through all facets of the business community to reach the corporate insurance-buying public and those doing business with insured corporations. The mere fact of the investigations � again, regardless of their ultimate resolution � will change the way business insurance is purchased. Even though we do not know precisely how these changes will manifest, all parties to the insurance relationship � the insurer, the insured and the broker � will have at least some role in defining responsive going-forward processes and strategies. We do know that investigations targeting potential insurer financial stability, alleged broker contingent commissions and alleged bid rigging are already serving as catalysts for change. By focusing on these issues, general counsel to corporate insureds can begin shaping their clients’ participation in the response to the outcome of Spitzer’s inquiries � whatever it may be. The financial integrity of some of the nation’s largest insurance companies is under the microscope by virtue of investigations into an insurance risk transfer practice known as “finite reinsurance.” At least one insurer has been accused of misusing finite reinsurance transactions to improve its financial statements. The challenges behind finite reinsurance go to the financial integrity of the affected insurance companies. If certain companies are not as financially stable as their publicly announced documents reflect, it could be that more insurance companies will go into liquidation or, more probably, that the affected insurance companies will have to increase premiums to make up the difference to shore up their balance sheets. While the liquidation scenario seems unlikely, if it were to happen it might leave certain claims uncovered � or only partially covered to the extent that state guaranty funds generally have maximum caps. This could increase the risks of uninsured exposure (an exposure which had been thought to be insured) to corporate insureds. The liquidation scenario might also reduce competition, which in theory could result in higher rates from the remaining carriers. Whatever else comes out of Spitzer’s investigations, the issue of insurer financial integrity is now on the table. Corporate insureds are on notice in terms of the alleged improprieties. Insurers need to restore customer confidence in their financial stability. Regardless of whose fault this is, corporate insureds may now decide to incur the time and expense of due diligence on the financials of their proposed insurers. Corporate insureds can start right away by improving their literacy about the business side of the insurance industry and by monitoring their insurers’ financial status on a scheduled basis. Insured/broker and broker/insurer relationships will inevitably change in the wake of legal and investigatory actions regarding commissions accepted by brokerages for the placement of insurance with certain insurers. Attorney General Spitzer and others have challenged the practice of an insurer paying an additional commission � beyond that disclosed in the proposal or on the policy � to the broker who brings a high volume or particular type of insurance business to the insurer. The allegations assert that different commission schedules are offered depending on the amount and type of business placed or renewed by a particular broker. As general counsel, you can take steps now to help protect your company and ensure that these practices � if they are really happening in the placement of insurance involving your company � do not end up costing your company money:

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