Needed: A Code of Ethics

Before a meeting of 400 insurance executives in Chicago last week, a growing problem was posed. The problem: the danger of racketeering in the administration of big union welfare and pension funds. The man who posed it was Martin E. Segal, Manhattan consultant for nearly 500 such funds. Said he: "Some individuals have used the welfare funds for their own private gain rather than for the benefit of the workers and their families.

It would be a mistake ... if the welfare funds which are in disrepute were permitted to cast a shadowy doubt on the thousands of collectively bargained welfare funds which are honestly administered by employer and union trustees."

Just how big the welfare funds have grown, nobody knows. But Segal estimated that they have contributed materially to the growth of group life, health and annuity insurance premiums, from $1.86 billion in 1950 to an estimated $3.05 billion last year. In 1950, he said, 5,000,000 people, triple the 1948 number, were covered by pension plans, and he believes the figure has since swelled to 10 million.

"Public Be Damned." What can insurance companies do about the problem? Segal had a suggestion: "Where a welfare fund has been wrongly used ... it is not only the union leader and the employer representative who are at fault. The insurance company and insurance agent or broker involved are also responsible . . . The insurance industry must police itself. If it does not do this effectively, there will inevitably be restrictive legislation. The elimination of excessive commissions, needless service fees and so-called 'administration fees' would automatically eliminate those who are in this field simply to exploit it with a 'public be damned' attitude ... A code of ethics should be developed and anyone violating that code should be prevented from participating in ... welfare plans--just as bar associations throw out those of their mem bers who violate the ethics of that . . . profession."

Segal's warning pleased few insurance men. Said one young insurance executive: "Labor and management decide what the benefits are and it is up to us to go along." Another remarked that the industry has a "fine record" and that the "scamps" are a small minority. One insurance company official agreed that there ought to be a code. "But," he asked, "who formulates it?"

Kickbacks & Loans. There seemed little doubt that state and Federal governments might formulate it, unless the companies act first. Investigations into union welfare funds are already under way in New York, New Jersey, Illinois, Missouri and California. They have dredged up cases of union bosses who have set up insurance agencies in the names of friends and relatives, taken 3% to 15% of the premium in commissions, v. the 1/4% to 1% charged by reputable firms. Some shady companies were found to be offering sizable kickbacks for business brought to them by union leaders. In New York, the late (gunshot wounds) Yonkers Raceway Labor Boss Thomas F. Lewis (TiME, Oct. 5) and his associates picked up $275,000 in excess commissions and fees from the welfare fund of his small (about 5,000 members) union. In Minneapolis, a teamsters' union-fund trustee borrowed money from the fund to open a bar and grill.

Such abuses were noted by President Eisenhower, who recommended in his labor message last month that Congress study such funds and draw up legislation to protect the union members. In an investigation last year, a House labor subcommittee barely scratched the surface. Another committee is scheduled to be named in about a month to make a broad investigation.

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