October 14, 2004 by Canadian Underwriter
New York Attorney General Elito Spitzer Thursday announced the launch of a civil suit against brokerage Marsh over commission practices. The suit alleges the brokerage “steered unsuspecting clients to insurers with whom it had lucrative payoff agreements, and that the firm solicited rigged bids for insurance contracts”. Spitzer also announced that two unnamed executives from AIG had pleaded guilty to criminal charges related to the alleged scheme.
Spitzer initiated an investigation into so-called contingent commissions or placement service agreements, ostensibly as a result of complaints that brokers were not adequately disclosing the nature of such agreements to their clients. At the time, Marsh, Aon, Willis and Hub’s Kaye Insurance were all subpoenaed for information, as well as several insurers.
New York Insurance Superintendent Greg Serio says, “this has gone from an inquiry into failure to disclose compensation to an active investigation of bid rigging and improper steering. This certainly proves the adage that where there is smoke, there is fire.”
The suit alleges Marsh not only “distorted and corrupted” the insurance process by steering customers to insurers with which it had more lucrative agreements, but goes on to allege the broker “solicited fake bids, which deceived its customers into thinking that true competition had taken place”.
Responding to the charges, Marsh parent Marsh & McLennan Cos. says, “We are committed to getting all the facts, determining any incidence of improper behavior, and dealing appropriately with any wrongdoing. This is our highest priority.”
The two AIG executives are expected to testify for the Attorney General’s office in the future civil case, which has been filed in NY State Supreme Court in Manhattan.
AIG, in a statement, disclosed that the two executives work in the excess casualty unit of American Home Assurance Co. “We are saddened by this news because we hold ourselves to the highest ethical standards,” the insurer said in a comment on the guilty pleas. “We take these charges seriously and will continue to cooperate with the Attorney General’s office.”