Insurance News

KLC to put up ‘fire wall’ between insurance and other operations

Posted on: August 31, 2009

The Kentucky League of Cities has agreed to stop offering sports tickets and other perks worth more than $25 to local officials to avoid breaking the law that forbids inducements for prospective insurance customers.

The new policy is part of the League’s efforts to establish a clear separation between its insurance division and its other operations, as recommended by the Kentucky Department of Insurance.

Temple Juett, the League’s general counsel, said in an Aug. 17 letter to the insurance department that the League shares the concern that some gifts that KLC provides local officials could be considered incentives for business.

Officials from both the League and the Kentucky Association of Counties have been in discussions with state insurance regulators over the last two months, after the Herald-Leader’s articles on spending and expenses of the group’s officials.

The insurance department accepted the League’s proposed reforms on Tuesday, according to letters obtained by the Herald-Leader through an Open Records request.

Among the changes:

? The Kentucky League of Cities Insurance Services will no longer sponsor meals, hospitality events or cocktail receptions at League events and conferences.

? The League will stop providing football, basketball and other event tickets to League members or prospective members. It will offer them only to its 53 board members.

? The League’s insurance administrator, William Hamilton, will give up oversight of the League’s financing program to focus exclusively on insurance.

The League and KACo offer services, such as lobbying and legal advice, to local governments but they have divisions that sell property, liability and workers’ compensation insurance to cities and counties.

Both organizations, which are funded through local government dues and payments for insurance and financing products, have spent tens of thousands of dollars on meals, travel and other expenses for elected local officials who attend their functions.

Many cities and counties then buy insurance from the League and KACo, bypassing other insurance firms.

But Kentucky law prohibits entities that sell insurance from giving away gifts, prizes or perks worth more than $25 to customers or prospective customers. Insurance regulators warned that some of the activities by the League and KACo could be construed as violations of the law.

“The statutes were passed to try to provide a level playing field for all insurance agents,” insurance commissioner Sharon P. Clark said.

The department wanted the groups to set up a fire wall between the parent organizations and the insurance divisions so the board could more carefully monitor the insurance businesses, Clark said.

Insurance regulators wanted the League and KACo to come up with their own policy changes in response to the concerns because they are so different from private insurance agencies, she said.

Clark said the League had been cooperative and “extremely responsive.”

KACo will agree to make similar changes, KACo president J. Michael Foster said in an interview Wednesday.

“I think it will be an easy fix,” Foster said.

Clark confirmed that the department received a letter from KACo late Wednesday in response to the department’s recommendations. Officials hadn’t had an opportunity to fully review it by Thursday, she said.

Foster said the organization will work to separate the insurance business from any promotions, dinners or activities sponsored by the organization as a whole.

“They want to make sure that the insurance product basically sells itself and that the people who work in the insurance program are not involved in any type of marketing,” Foster said. “And if that’s what the Department of Insurance recommends, that’s exactly what we will do.”

© 2009 Kentucky.com and wire service sources. All Rights Reserved.

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