The New York attorney general's nascent but expanding probe into bid-rigging on Tuesday threatened to envelop the entire U.S. insurance industry, unnerving investors unsure how far Eliot Spitzer (search) might go.

Shares of U.S. insurance and HMO companies comprised most of the biggest decliners on the New York Stock Exchange (search), as it became evident Spitzer's investigation has moved beyond property and casualty insurers and brokers, and now also covers life and medical insurers.

At least two other states, Connecticut and Pennsylvania, are studying Spitzer's lawsuit last week against New York-based insurance broker Marsh & McLennan Cos. (MMC) for allegedly rigging bids from insurers, and inflating costs for clients.

Shares of health insurers Aetna Inc. (AET) and Cigna Corp. (CI) were particularly hard hit, suffering double-digit declines. Philadelphia-based Cigna confirmed it has received a subpoena from Spitzer, and the Hartford Courant said Aetna, based in that city, has received one.

"It is scaring to death anyone invested in the sector," said Tim Ghriskey, chief investment officer of Solaris Asset Management. "It intimates that brokerage fees could potentially become transparent to consumers, and that will increase competition. As a result, brokerage fees might decrease. Consumers will benefit but it will squeeze the companies. That is why you are seeing a fierce selloff."

At the root of the investigation are fees offered to brokers by insurers — so-called contingent payments — for insurance business, and fictitious bids made at the expense of corporate and municipal clients.

Spitzer has in recent years taken the lead role in cleaning up excesses in Wall Street stock research, stopping mutual fund companies from allowing rapid trading at ordinary investors' expense and challenging the $188 million pay package of former New York Stock Exchange Chairman Richard Grasso (search).

Many insurers are already under pressure as soaring claims from this year's four Atlantic hurricanes crimp profit.

New York-based MetLife Inc. (MET), the No. 1 U.S. life insurer, on Tuesday said it never gave a "fictitious" quote when selling insurance, but said it paid brokers $25 million in finder fees in 2003 to attract new clients.

MetLife said it is reviewing its commission payment practices. The company said it is among the insurers to receive subpoenas from Spitzer over insurance broker compensation.

Meanwhile, UnumProvident Corp. (UNM), the largest North American provider of group and individual disability income protection insurance, said Spitzer subpoenaed it for information about broker compensation. The Chattanooga, Tenn.-based company said it is reviewing its policies.

In afternoon trading, Aetna shares fell $10.73, or 11 percent, to $87.01, and Cigna shares fell $6.33, or 9.5 percent, to $60.25. UnumProvident shares fell $1.33, or 9.8 percent, to $12.19, and MetLife shares fell 49 cents, or 1.4 percent, to $34.01.

Shares of Marsh fell $1.43, or 5.6 percent, to $24.14, taking their four-day decline to more than 47 percent. Shares of rivals Aon Corp. fell $1.16, or 5.5 percent, to $20.11, and Willis Group Holdings Ltd. fell 49 cents to $31.81.