Insurance Schemes

Insurance is a big area for abuse in local government. It usually constitutes a sizeable dollar percentage of a town's contracts, and an insurance broker who works in government can use his or her position to get the insurance business of companies that do or want to do business with the town. And insurance is an area few people understand, and which no department, office, or board may be responsible for overseeing.

According to an article in the New Orleans Times-Picayune this week, the discovery of an insurance scheme brought down the Jefferson Parish president and his top administrator (the parish attorney later resigned, as well). Now, the state board of ethics has filed three dozen ethics charges against them. Jefferson Parish (pop. 400,000) is part of New Orleans.

The center of the scheme was an agreement between a community hospital and an insurance company owned by the administrator and his wife. The administrator's insurance company also did business with several parish contractors as well as with several insurance companies that did business with the parish. The former owner of one of these contractors was convicted on federal bribery charges (he had been president of another local parish), and another of the contractors is currently under federal investigation.

Not only was the insurance broker a parish administrator. He was also a member of the parish Insurance Advisory Committee, which had jurisdiction over the hospital's insurance matters. That is, there is an oversight body, but at least one of its members had a bit too much expertise.

Insurance schemes are often very complex with many players, and this was no exception. When others want to be involved, it's hard to say no. According to the charges, the administrator's company entered into "cooperative endeavor agreements with two other insurance agencies managed by politically connected associates," one a former parish president. The company also is said to have shared commissions with an agency that does insurance work with several public entities in the area.

The charges against the former Jefferson Parish president include accepting $5,000 for "legal services" provided to the administrator's insurance agency, and $4,500 annually as a holiday gift from his staff ($100 from each staff member), with the funds collected by the administrator.

The lesson to be learned is that there has to be knowledgeable but independent oversight over all insurance dealings that involve either the government itself or those who do business with the government. There also needs to be full disclosure, with serious penalties for any company that does not disclose, so that you don't get this sort of web of players.

Insurance dealings should be included in the transactional disclosure required of those bidding for contracts or seeking permits. It could even be added to annual disclosure forms for high-level officials. It seems to be such an easy an area to abuse, it requires a great deal of transparency.

Robert Wechsler
Director of Research-Retired, City Ethics

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