Aetna, Cigna and other health insurance giants were rocked Tuesday as New York Attorney General Eliot Spitzer’s insurance bid-rigging and collusion investigation spread.
Insurance regulators in at least three states have joined Spitzer’s probe, which is rapidly expanding to include all lines of insurance and all types of businesses, including consultants who advise buyers of insurance.
Spitzer contends that anti-competitive and even criminal behavior in the industry has helped inflate insurance rates paid by companies and individuals.
Last week, the attorney general filed a civil lawsuit against Marsh & McLennan, charging that the nation’s largest insurance broker duped its customers by faking and rigging bids for insurance contracts and favoring insurers that paid higher incentive commissions. Insurance giants American International Group, Hartford Financial, Ace and a division of Germany’s Munich Re were among those implicated in the scheme.
The scandal shows no signs of abating. Aetna, Cigna and UnumProvident, the largest provider of group and individual disability income protection insurance, all acknowledged Tuesday receiving Spitzer subpoenas the best evidence yet that his inquiry is moving beyond property and casualty insurers and brokers, and now also covers life and medical insurers.
Also summoned by Spitzer, MetLife, the largest life insurer, acknowledged Tuesday that it paid brokers $25 million in finders fees last year to attract new clients but never gave a “fictitious” quote when selling insurance.
Marsh & McLennan saw its share price hit again Tuesday the stock is down 48% since the scandal broke but has still not rescheduled a conference call with investors originally set for Monday.
Marsh & McLennan “Chairman Jeffrey Greenberg’s reluctance to face the ‘what did you know and when did you know it’ line of grilling from aggrieved analysts is disappointing,” Gimme Credit analyst Kathy Shanley wrote clients. “We see no evidence to suggest the situation has bottomed out.” Marsh had no comment.
At the heart 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’s office is also scrutinizing tying, in which brokers require that insurers buy reinsurance in exchange for receiving better primary insurance contracts.
The probe is quickly becoming national in scope. Insurance regulators in California, Pennsylvania and Connecticut said Tuesday they were examining allegations raised by Spitzer’s lawsuit.
John Garamendi, California’s insurance commissioner, wants to outlaw incentive commissions and intends
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