Aon settles probe for $190 million

By James P. Miller
Chicago Tribune Staff Reporter
March 4, 2005


Chicago insurance brokerage Aon Corp. agreed today to pay $190 million to settle fraud claims brought by the attorneys general of three states.

The claims involve a complicated arrangement -- long considered by industry players to be a normal business practice -- in which insurance companies paid Aon "contingent commissions" in exchange for steering business their way.

Aon employees were in a position to perform such steering because, as a broker, the company serves as a middle man between companies that are seeking insurance and insurers that provide such coverage. New York State Attorney General Eliot Spitzer launched an investigation of the practice about a year ago, saying that brokers are inclined to send customers to insurance companies that pay such fees -- even if there are better deals for the customer available.

That practice creates a conflict of interest for the brokers, and thus cheats Aon customers, Spitzer alleged. In the wake of his inquiry, the attorneys general of a number of other states have pursued similar claims.

Last year, in response to Spitzer's probe and the ensuing publicity about the practice, Aon and its larger brokerage-industry rival Marsh & McLennan Cos. both stopped accepting the lucrative but suddenly controversial contingency fees.

Two months ago, Marsh agreed to pay $850 million in restitution to clients damaged by its acceptance of the contingency fees. As part of that accord, which ended Spitzer's investigation, Marsh also publicly apologized for its "unlawful" conduct, but didn't pay any fine or penalty.

The agreement Aon and Spitzer disclosed today bears many of the same elements.

Under the settlement pact, Aon won't pay any fine but will create a $190 million fund, which will be used to provide restitution to Aon insurance clients. Such clients are typically not regular consumers, but instead are corporations with complicated, and extensive, insurance requirements.

In settling the three states' complaints, Aon Chairman and Chief Executive Patrick Ryan offered a public apology for the improper acts of "some Aon personnel." The company also agreed to alter certain business practices, and to provide customers with more information about how Aon collects fees.

Spitzer contended in a prepared statement that the civil complaint he brought against Aon, which will now be resolved by today's agreement, "shows that improper conduct was pervasive at Aon."

The tax-deductible $190 million cost of resolving the three states' complaints will pinch Aon's earnings, but on a long term basis the loss of the contingent commissions it used to collect will probably cost the company much more.

Investors were cheered by the resolution of the litigation that has been hanging over Aon, however. In New York Stock Exchange trading this morning, Aon shares rose 42 cents, or 1.7 percent.

Copyright 2005 Chicago Tribune



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