Insurance Industry Under Scrutiny: Bid-Rigging Allegations Spark Investigations and Congressional Hearings

Strategic Insights -

Investigations into possible bid-rigging and compensation practices at some of the world's largest insurance brokers have led to a wave of subpoenas and lawsuits, prompting industry leaders to reexamine their business practices. New York Attorney General Eliot Spitzer's allegations of widespread corruption in the insurance industry have sparked a backlash from trade groups and industry lobbies, while lawmakers and regulatory bodies have begun to take action.

Key Takeaways:

  • Aon Corp. and Willis Group Holdings Ltd. have disclosed that more investigators are joining the probe into possible bid-rigging and compensation practices at their companies, according to their U.S. Securities and Exchange Commission filings.
  • Aon has received subpoenas from Connecticut Attorney General Richard Blumenthal and several state insurance regulators, while Willis has received subpoenas from "insurance commissioners and attorneys general of other states."
  • Willis expects more lawsuits related to its compensation arrangements, but does not expect the outcome to materially affect its bottom line.
  • Prudential Financial Inc. has been asked for information by the U.S. Department of Labor and the SEC itself, following the investigation by Spitzer.
  • The National Association of Insurance Commissioners has formed a task force on the issue, while the Senate Banking subcommittee will hold a hearing on the matter when Congress returns from its break.
  • Industry trade groups in Washington have expressed concern that the Spitzer probe will force key industry issues off of Congress' agenda.

Statistics:

  • Aon has received nearly three dozen subpoenas from state insurance regulators and attorneys general.
  • Willis has received subpoenas from "insurance commissioners and attorneys general of other states," but did not specify the number.
  • Spitzer's probe has led to the issuance of nearly three dozen subpoenas from New York Attorney General's office.
  • The Terrorism Risk Insurance Act is set to expire without renewal, with industry leaders concerned that the Spitzer probe will push legislative reform off the agenda.

Sources:

  • A. M. Best via COMTEX, Nov 10, 2004
  • U.S. Securities and Exchange Commission filings for Aon Corp. and Willis Group Holdings Ltd.
  • New York Attorney General Eliot Spitzer's press release on the Marsh & McLennan Cos. lawsuit
  • National Association of Insurance Commissioners press release on task force formation
  • Senate Banking subcommittee agenda, November 2004
  • U.S. Department of Labor and SEC requests to Prudential Financial Inc. (dates not specified)