ALBANY, N.Y. – Insurance brokers required to provide competing bids to customers seeking the best deal have been taking payoffs from insurance companies to rig the system in widespread corruption in the industry, New York Attorney General Eliot Spitzer (search ) charged Thursday.
Two insurance company executives were expected to plead guilty to participating in the illegal conduct and are expected to testify in future cases, Spitzer said in announcing the broader investigation into whether brokers and companies violated fraud and antitrust laws and regulations. He did not give details on their identity or employer.
The victims were mostly large corporations who were deceived into buying property and casualty coverage that may have cost more, but also included small and mid-size businesses, municipal governments, school districts and individuals, Spitzer said.
Spitzer announced the civil suit against Marsh & McLennan Companies (MMC) of New York City, the nation's leading insurance brokerage firm, accusing it of steering clients to insurers for lucrative payoffs under long-standing agreement. The firm collected $800 million in so-called contingent commissions in 2003 alone, investigators said. Spitzer also accuses the company of soliciting rigged bids for insurance contracts.
Some of the nation's largest insurance companies including New York-based American International Group Inc. (AIG ), ACE Insurance Co. of North America based in Philadelphia, The Hartford and Munich American Risk Partners are accused in Spitzer's suit of steering contracts and bid rigging. He said other insurance companies are being investigated.
Spitzer bases part of his insurance industry probe on internal e-mails and memos, in which he said insurance executives openly discussed actions that were aimed at maximizing Marsh's revenue and insurance companies' revenues, without regard to clients' interests.
A spokesmen for Marsh declined comment. The insurance companies named in Spitzer's suit had no immediate comment.
"If the practices identified in our suit are as widespread as they appear to be, then the industry's fundamental business model needs major corrective action and reform," said Spitzer, who has forced Wall Street to adopt measures against conflicts of interest among stock analysts. "There is simply no responsible argument for a system that rigs bids, stifles competition and cheats customers."