Late Fall 2004: Elliot Spitzer uncovered a massive bid-rigging arrangement stemming from the world’s largest insurance brokerage company.The arrangement was so grossly misguided that Spitzer called it the “cartel” of the insurance industry. These companies all had one thing in common, their CEO and his family roots.This story would almost fit into the next season of HBO’s The Sopranos.
The scam began with a man named Jeffery Greenberg who is the CEO of Marsh & McLennan.His company made arrangements with two other companies Ace, Ltd and AIG who were headed by his brother and father respectively.When a business would hire Marsh as their broker to find an insurance company, Marsh would in turn solicit bids from insurance companies.In the bid-rigging case, Ace, Ltd and AIG would enter artificial bids in return for kickbacks.The bidding losers appeared to have higher costs when, in fact, their numbers were inflated at the request of Marsh.The “preferred” insurer would win the contract.When the next round of bids was solicited, a different company with the cheapest-looking bid would secure the contract.In the classic scenario of a shakedown, the guilty plead innocent and point their fingers at the other guy.When questioned by the SEC, both Ace and AIG pointed at Marsh as the guilty party.
After exposing the first family of insurance, Spitzer questioned several other practices that had abused the interests of the investor.Health and Life insurance companies are also under investigation for bid-rigging and inappropriate incentive programs for brokers.
Take a look at the stories we’ve listed on this page.You can read more about problems in the Insurance Industry below:Update 1: AIG Fires Two Execs for Failure to Cooperate Forbes.com, 3/22/05 The CFO and VP were fired for not cooperating with government investigators. AIG's board also removed the CEO, Maurice Greenberg. The investigation was to determine if AIG has manipulated its books to mislead investors. AIG's company policy requires employees to cooperate with investigations of company-related matters. www.forbes.com Marsh to Pay $850 Million to Settle Charges by Spitzer New York Times, 1/31/05 Policyholders will receive restitution for the bid-rigging scandal Marsh was caught in last year. Marsh accepted payoffs from insurance companies to send them clients. None of the $850 million was allocated for a penalty, but set up as an account for restitution. The SEC will also require among other reforms, Marsh to fully disclose all forms of compensation. www.nytimes.com Spitzer to Expand Insurance Probe in Matter of Weeks Money Management Executive, 12/28/04 In early January, Spitzer plans to expand his investigation in to the investment management industry. In October, Spitzer sued Marsh and McLennan for price fixing and bid rigging. The new suit against the insurance industry will also target ill behavior that is misleading to consumers. www.mmexecutive.com Insurer Gets Subpoena No. 5 Star Tribune, 11/17/04 St. Paul Travelers Companies have been subpoenaed again in the insurance scandal investigation headed by Elliot Spitzer. Spitzer is investigating whether or not St. Paul Travelers sold insurance products to help hide losses and exaggerate earnings of companies in financial trouble. The company denies selling those types of products because they don’t offer loss-mitigation products. St. Paul Travelers have been subpoenaed five times by regulators since AIG came under fire for bid-rigging. www.startribune.com Ace Fires 2 Employees; Marsh General Counsel to Resign Wall Street Journal, 11/05/04 ACE announced it fired two employees and suspended three others who were involved in the bid-rigging scandal with Marsh and McLennan. The company would provide Marsh with requested artificial bids. The general counsel at Marsh has stepped down with more departures expected. www.wallstreetjournal.com Concern Widens Over Contingencies Between Health Insurers and Brokers Wall Street Journal, 10/21/04 After exposing the mutual fund scandals, Elliot Spitzer is now investigating major insurance companies, brokerages, and benefits-consulting firms for their roles in conflict-ridden fees that are harming investors. Spitzer is concerned about the insurers paying brokers for meeting profitability targets. That cost is passed on to the employee of the company who pays for the plan's cost in addition to the regular middleman fees charged by the insurer. www.wallstreetjournal.com AIG’s Chief Shows Signs of Humility as Spitzer Probe Rattles the Industry Wall Street Journal, 10/20/04 AIG’s CEO, Maurice Greenberg, is not defending the company’s involvement with Marsh’s bid-rigging scheme. Previously, the CEO’s reputation has been “combative,” and AIG has been bullish about fully disclosing its business practices to the public. So far, the company has not showed any signs of changing but may change as Spitzer’s investigation digs deeper and companies are penalized. www.wallstreetjournal.com Marsh Directors Race to Address Spitzer Charges Wall Street Journal, 10/20/04 Marsh’s board of directors was almost the last to know about Spitzer’s suit against the company for rigging bids. The board is scrambling to hire a law firm for representation as well as catch up on the situation at Marsh that got them into the hot water. The board ranks low in studies conducted by watchdog groups. Critics say the board has too many current former managers serving. www.wallstreetjournal.com
Class Action Threat Added to Challenges Facing the Insurers Wall Street Journal, 10/20/04 Insurance regulators have hired a class-action law firm to charge insurance brokers with not providing advice serving the best interests of their clients. Brokers sold plans based on commissions earned and incentive programs in the areas of life insurance and employee-benefits. These brokers will come under scrutiny of the California law firm. www.wallstreetjournal.com Insurers’ Own Insurance Policies in Spotlight Wall Street Journal, 10/19/04 Aon is being investigated by the SEC to determine if they were in violation for steering business to companies in return for lucrative business for itself. Aon was being paid by clients to have them find the best deals. Instead, the company solicited companies to give Aon business in exchange for referring those companies to their own clients. http://www.wallstreetjournal.com/ Spitzer Uses Old State Law to Target Insurance Industry Wall Street Journal, 10/19/04 A law enacted 111 years ago to preserve business competition is being used by Elliot Spitzer to charge Marsh and McLennan with bid-rigging. The Donnelly Act focuses on anti-trust protection. Marsh’s limited relationship with favored companies violated fair business competition. www.wallstreetjournal.com ACE Executive Noted Request for Bid Last November Wall Street Journal, 10/19/04 An email uncovered from ACE reveals that the insurer may have known it was committing fraud with bid-rigging. ACE’s president of the casualty-risk unit warned another top executive that the bid arrangements could appear to be disingenuous. Instead of stopping the practice, the company began calling the bid practice by a different name, so it would appear more neutral in nature. www.wallstreetjournal.com Probe Clouds Future of Insurance’s 1st Family Wall Street Journal, 10/18/04 Marsh and McLennan, AIG and Ace are all headed by a member of the Greenburg family.Elliot Spitzer has uncovered a bid-rigging scheme among the companies that he called a “cartel.”In an attempt to displace guilt, AIG and Ace have both pointed to Jeffery Greenberg, CEO of Marsh, as the one to blame for the misconduct. www.wallstreetjournal.com Insurers Reel from Bust of a 'Cartel' Wall Street Journal, 10/18/04 The nation's largest insurance companies have been subpoenaed by the SEC to provide information on their involvement of the bid-rigging scheme that was uncovered in the insurance industry. So far AIG, Ace, and Hartford have provided information about their involvement in the bid-rigging with Marsh and McLennan. They have admitted to being paid kickbacks in return for soliciting inflated bids to mislead customers. www.wallstreetjournal.com
