Kentucky health insurers are not unlike other health insurers across the nation: They have dramatically raised their premiums in the last year. The result? A plague of unlicensed health insurers has swept the state, promising lower premiums but actually preying on consumers' pocketbooks and saddling them with unpaid claims. (See How to spot an unlicensed insurer.)

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In November 2001, the Franklin County Circuit Court issued an injunction against TRG Administration LLC and TRG Marketing LLC, companies that had been marketing an unlicensed form of health insurance in Kentucky, as well as in Hawaii, Indiana, and Louisiana. Additionally, state regulators issued consumer advisories or legal orders against Employers Mutual LLC and affiliated companies for allegedly offering unauthorized insurance.

Nationwide, more than 22,000 customers of Employers Mutual LLC have racked up an estimated $4.5 million in unpaid health insurance claims. While the unsuspecting customers visited their doctors, the principals of the unlicensed health insurer and its affiliated associations diverted more than $6 million of the health plan's assets into their own personal bank accounts.

Kentucky Insurance Commissioner Janie Miller credits insurance agents for tipping off state regulators about questionable marketing practices in which TRG began promoting plans to insurance agents as a type of self-funded insurance plan that employers could offer to employees at greatly discounted premiums with benefits resembling standard health insurance and provider networks.

"These agents had concerns that consumers were being misled and that sales and marketing practices were forbidden by law," Miller says.

Consumers can find a list of properly authorized insurers in Kentucky by visiting the Kentucky Insurance Department's Web site.