Practices make perfect targets for regulators.

• Position: INSURANCE - Health maintenance organizations

Things were going great in the insurance industry in 2004. Life and annuity companies were boasting about better bottom lines, thanks to strong annuity sales and rising interest rates that boosted investment income. Health insurers continued to enjoy hefty profits but not as big as in 2003, when they sparked complaints from consumer advocates and regulators. Auto insurers finally declared a truce in their long rate war with N.C. Insurance Commissioner Jim Long. And casualty companies dodged big payouts when hurricanes flooded inland rivers, causing significant damage--but not the kind covered by most policies.

Then along came Eliot Spitzer. In October, New York's attorney general launched an investigation of bid rigging and kickbacks to agents by major insurance companies. His earlier probe of cozy trading agreements in the mutual-fund industry led to billions of dollars in fines and settlements, so his insurance offensive sent shock waves around the country. Long soon launched his own probe, asking more than 5,000 companies and brokers doing business in the state to certify that they haven't engaged in bid rigging.

The issue revolves around a common practice called contingent commissions, paid by insurance companies to brokers for steering business their way. Spitzer's investigation likens them to kickbacks. "The Spitzer thing hangs over the entire industry," says John Leonard, an insurance analyst with SNL Financial in Charlottesville, Va. While the initial probe involved corporate clients of big insurers, it expanded deep into the industry across just about every line and could touch health, life, auto and casualty, he says. He expects companies to change business practices and to pay big fines and settlements.

But regulators and insurers have been battling over other issues here for a long time. Blue Cross and Blue Shield of North Carolina spent 2004 trying to defend its hefty profits. Long said he might demand that it issue rebates if they continued to surge. Blue Cross shared some of its take with members in the form of benefits such as free generic drugs. And it said it would try to slow rate increases and bring its profit margin back below 6% after having it blow past 8% in 2003. Net income dropped 16% the first nine months of 2004 to $145.5 million.

Health-maintenance-organization profits for the first nine months of 2004 were down 20% to 30% from 2003. United Healthcare of North Carolina, the state's largest, reported net income...