Hold onto your ENRONS-Congress Probes Insurance Industry Scandal

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http://biz./ap/041116/congress_insurance_probe_1.html

" In another suit, Spitzer has accused Universal Life Resources, a

California-based company that brokers life, accident and disability policies for

leading

U.S. companies, of pocketing millions of dollars a year in hidden payments

from insurers and from charges on clients' unsuspecting workers. He contends

that

the company's activities raised the cost of insurance for workers who

contributed to coverage they secured through employers. "

Associated Press

Congress Probes Insurance Industry Scandal

Tuesday November 16, 12:53 am ET

By Marcy Gordon, AP Business Writer

Congress Examining Insurance Industry Scandal Amid Allegations of Bid Rigging

WASHINGTON (AP) -- Congress is examining the scandal rippling through the

insurance industry, with its largest brokerage accused of bid rigging and price

fixing amid high-level resignations, employee layoffs and guilty pleas by some

executives.

New York Attorney General Eliot Spitzer launched an investigation on Oct. 14,

the latest in a series of high-profile probes he conducted of key financial

industries, including Wall Street investment firms and mutual fund companies.

Spitzer, in a civil lawsuit, maintains that Marsh & McLennan Companies Inc.

took payoffs from insurance companies, resulting in businesses being forced to

pay more than necessary for property and casualty policies.

He has accused the nation's biggest insurance brokerage of bid rigging, price

fixing and heavy use of incentive fees, sometimes called marketing service

agreements or placement service agreements. They are fees paid to brokers over

and above regular commissions by insurance companies in exchange for getting

more business.

Some of the largest insurers, including American International Group Inc.,

ACE Insurance Co. of North America, The Hartford and Munich American Risk

Partners are named in Spitzer's suit. Others are said to be under investigation.

Two

executives of AIG and an official of ACE have pleaded guilty to participating

in illegal conduct.

" The damages are vast, the corruption is remarkable, " Spitzer said at a news

conference last month.

A number of insurance companies, including Marsh & McLennan, have announced

changes in business practices and commissions since the inquiry began.

Spitzer was testifying at a hearing Tuesday by the Senate Governmental

Affairs subcommittee. Also appearing before the panel was Connecticut Attorney

General Blumenthal, who recently expanded his investigation into

allegations that insurance bids were rigged by examining whether unlawful

practices have

affected municipalities in the state.

Blumenthal is insisting that state insurance laws, including Connecticut's,

should be " reinvigorated and reinvented " to combat fraud, illegal steering and

bid-rigging, according to a copy of his prepared testimony released Monday.

New York-based Marsh & McLennan, whose share value has dropped nearly 42

percent since Spitzer announced his investigation, ousted two top executives of

Marsh Inc., its risk and insurance services unit. The parent company's senior

vice president and general counsel also stepped down. The company also said it

will lay off 3,000 employees, or about 5 percent of its work force, because of

fallout from the probe.

In another suit, Spitzer has accused Universal Life Resources, a

California-based company that brokers life, accident and disability policies for

leading

U.S. companies, of pocketing millions of dollars a year in hidden payments from

insurers and from charges on clients' unsuspecting workers. He contends that

the company's activities raised the cost of insurance for workers who

contributed to coverage they secured through employers.

ULR has brokered coverage since 1999 for 4 million employees of companies

including Intel Corp., Eastman Kodak Co., Colgate-Palmolive Co., Marriott

International Inc., UPS Inc., Viacom Inc., Brinker International Inc. and Dell

Inc.,

according to Spitzer's office.

The second-largest U.S. insurance broker, Aon Inc., is being investigated by

Spitzer's office for allegedly " tying " coverage to limit competition,

according to a source close to the investigation. Tying is the practice in which

brokers require insurance companies to hire them to handle their reinsurance

needs

in exchange for steering more customers their way.

Marsh & McLennan Companies Inc.: http://www.mmc.com

Spitzer's office: http://www.oag.state.ny.us