Minnesota Attorney General Probes Insurance Broker

By Sheryl Jean
St. Paul Minnesota Pioneer Press
March 9, 2005

Minnesota Attorney General Mike Hatch is investigating the Willis Group Holdings Ltd., the nation's third-largest insurance broker, for "potentially unlawful and fraudulent activities" involving contingent commissions, according to court documents filed Tuesday in Ramsey County district court.

Several internal documents and interviews with two of Willis' local customers provide "just cause that Willis is involved in fraud," Hatch said in an interview Tuesday.

According to the attorney general, since mid-December Willis has been unresponsive to Hatch's requests for documents in his office's ongoing investigation of insurance industry sales. So Hatch on Tuesday filed a court motion to compel Willis and affiliated companies to provide additional documents, such as client contracts, internal e-mails and revenue statements. The filing was a "complete surprise to us earlier today" said Dan Prince, a spokesman for London-based Willis in New York on Tuesday. He said Willis has "attempted to cooperate fully" with Hatch's request and has provided materials.

"We made several attempts to discuss the scope of the attorney general's request, which seeks extremely voluminous information on a global basis within a short timeframe," Prince said. He said the attorney general's office "has consistently refused to engage in such a discussion."

Willis is the first company to surface in Hatch's ongoing 5-month investigation of insurance sales practices and commissions. The filing also gives the first glimpse of dozens of insurers and customers that also fall under the probe.

Willis and affiliates have offices in Golden Valley, Edina and other Minnesota locations. Some of its largest Minnesota-based customers include 3M Co., Allina Hospitals & Clinics, M.A. Mortenson Co. and St. Jude Medical Inc.

Willis, with $ 2.3 billion in 2004 revenue, has 14,500 employees and 180 offices worldwide.

Hatch's investigation centers on whether Willis used contingent commissions to steer business to certain insurers at the expense of clients or required customers to place business with Willis affiliates, which is referred to as "churning" or "tying."

Minnesota is one of dozens of states that have expanded an industry-wide probe initiated by New York Attorney General Eliot Spitzer. On Oct. 14, Spitzer sued Marsh & McLennan Cos. Inc., accusing it of bid rigging and using incentive fees to control the sale commercial insurance. The nation's top two insurance brokers, Marsh and Aon, recently reached settlements, $ 850 million and $ 190 million respectively, with Spitzer and other regulators.

In late October, Willis stopped accepting contingency commissions in North America and said an internal review found no evidence of bid rigging or tying.

Willis last month agreed to sell Stewart Smith, one of the affiliates mentioned in Hatch's filing, after Spitzer questioned possible conflicts of interest under similar ownership at Marsh.

Since October, Hatch's office and the state Commerce Department separately have been investigating possible illegal payment agreements between insurers and brokers in Minnesota. The Commerce Department is looking at 12 insurance companies and a half-dozen insurance brokerages and expects more to be targeted in its ongoing probe, spokesman Bruce Gordon said Tuesday.

Hatch's nearly 400-page filing states that Willis earned more than $ 83 million in contingent commissions on business placed with its top 25 Minnesota clients from 2002 to 2004. The highest payments came from Chubb, $ 17.3 million; St. Paul Travelers Cos., $ 15.6 million; and CNA $ 3.4 million.

St. Paul Travelers, the nation's second-largest business insurer, declined to comment.

Several Willis documents and e-mails Hatch's office obtained from other sources outside the company reveal a company-wide sales strategy focused on contingent commissions.

One document from late 2003 listed key objectives for incremental revenue strategy, including "maximize premium volume flow to key (insurance) carriers with most attractive contingent income agreements."

An e-mail message dated Feb. 2, 2004, said Hartford Insurance Co. offered three local Willis offices a "VIP Status" contingent commission agreement if they placed $ 3.5 million in combined business with it, an increase from previous levels. Hatch's filing notes that the "Willis offices had a financial incentive to steer an additional $ 1.4 million in business to Hartford, as opposed to another insurer that may offer lower rates."

Willis customers had no knowledge of the company's pressure on brokers to increase sales and commissions, Hatch said.

"We believe there's been no problem, but we did respond to the attorney general's document request (regarding Willis)," said Terry Dresen, a spokeswoman for Allina in Minneapolis. Other Willis clients either could not be reached or declined to comment.

Copyright 2005 Knight Ridder/Tribune Business News

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