Eliot Spitzer Accuses Marsh Inc. of Cheating Customers with Rigged Insurance Prices

Strategic Insights -

New York State Attorney General Eliot Spitzer has filed a lawsuit against Marsh Inc., the world's largest insurance broker, for allegedly rigging insurance prices and steering business to favored insurers in exchange for millions of dollars in kickbacks. The lawsuit, which also names American International Group (AIG) and three other insurers as participants in the bid-rigging scheme, claims that Marsh misled customers by conducting sham bidding to make them believe they were getting the best price for their coverage. Spitzer's investigation has uncovered widespread practices in the insurance industry, with virtually every line of insurance implicated, including auto, home, and health insurance.

Key Takeaways:

  • Marsh Inc. allegedly paid $800 million in fees from insurers in 2003, a practice known as contingency commissions, which can lead to higher insurance costs for customers.
  • The lawsuit cites several examples of customers being misled by Marsh, including Fortune Brands and the school district of Greenville, S.C.
  • Two AIG executives, Karen Radke and Jean-Baptist Tateossian, pleaded guilty to criminal charges of rigging bids with Marsh and are cooperating with investigators.
  • Spitzer's investigation has revealed that many insurance industry executives and companies, including AIG, Hartford, and Ace, have collected contingency commissions on top of regular commissions by steering business to favored insurers.
  • Marsh's leadership, including CEO Jeffrey Greenberg, is at the center of the controversy, with Spitzer stating that he will not negotiate with them.
  • The lawsuit also names Munich American Risk Partners as a participant in the bid-rigging scheme.
  • Spitzer promised that there will be numerous criminal and civil cases as a result of the investigation.

Statistics:

  • Marsh Inc. paid $800 million in contingency fees from insurers in 2003.
  • Marsh's contingency commissions accounted for 4.5% of its total commissions in 2004.
  • AIG's contingency commissions accounted for 3.6% of its total commissions in 2004.
  • Willis Group's contingency commissions accounted for 1.8% of its total commissions in 2004.
  • Marsh's stock price plunged 24% to $34.85 after the announcement of the lawsuit.
  • AIG's stock price fell 10% to $60.
  • Hartford's stock price fell 6% to $58.40.
  • Ace's stock price fell 9.5% to $36.47.

Sources:

  • The New York Times, "Spitzer Attacks Insurance Industry with Lawsuit", 2004 (date not provided)
  • Bloomberg, "Spitzer Files Lawsuit Against Marsh Over Insurance Pricing", 2004 (date not provided)
  • J.P. Morgan, "Estimates of Commissions and Earnings", 2004 (date not provided)