Marsh Settles Insurance Bid-Rigging Charges with 9 States for $7 Million
January 6, 2009
Nine states have reached a $7 million settlement with New York-based insurance broker Marsh, Inc., Marsh & McLennan Companies, Inc., resolving a four-year investigation into Marsh's role in a nationwide bid rigging scheme.
Marsh allegedly made collusive arrangements whereby brokers entered into agreements with insurers to receive undisclosed compensation and engaged in anticompetitive conduct in the market for commercial liability insurance.
In January, 2005, Marsh agreed to a much bigger settlement with then New York Attorney general Eliot Spitzer over similar allegations. Marsh agreed then to set up an $850 million fund to compensate clients.
This latest settlement of $7 million is being divided among Florida, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Texas, West Virginia and Pennsylvania. The Florida Department of Financial Services and the Florida Office of Insurance Regulation also joined these states' attorneys general in the settlement.
"Marsh's conduct underscores the need for strong enforcement and deterrence in the insurance arena," said Massachusetts Attorney General Coakley, whose state is getting $1 million.
"Customers need to know they can trust their brokers and that their insurance brokers are working with the customer's interests at heart. We will continue to closely monitor the marketplace in order to protect insurance customers against unfair and deceptive conduct."
Under the terms of the states' agreement, Marsh must disclose to its clients all compensation received from insurance companies in connection with the placement of an insurance policy, obtain the client's written consent to the compensation, and disclose at the end of each year annual totals of compensation received in connection with a client's policy.
The intricate bid rigging scheme allowed Marsh to designate which insurance company's bid would "win" a particular account. To create the appearance of a competitive bidding process, Marsh would instruct certain insurers to submit inflated, intentionally uncompetitive bids. These schemes gave commercial policyholders the impression that they were receiving the most competitive commercial premiums available, when they were actually being overcharged.
Additionally, Marsh was involved with a "pay-to-play" arrangement centered on its receipt of contingent commissions, in addition to standard commissions and fees, from certain insurance companies. Contingent commissions, also known as profit sharing commissions, are incentive-based compensation programs offered to brokers by insurance companies. These arrangements were often undisclosed to consumers, and provided an incentive for brokers to steer business to the insurer that offered the most lucrative contingent commissions, often in violation of their clients' interests, according to the officials.
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