Insurance broker accused of rigging bids

Eliot Spitzer, the New York state attorney general, yesterday accused the world's largest insurance broker of cheating customers by rigging prices and steering business to insurers in exchange for millions of dollars in kickbacks



The lawsuit brought by Mr. Spitzer against the broker, Marsh Inc., a unit of the Marsh & McLennan Companies, contends that Marsh conducted sham bidding to mislead customers into thinking that they were getting the best price for the coverage they needed. The lawsuit cites several examples of customers - including Fortune Brands, which sells Titleist golf balls and Jim Beam spirits, and the school district of Greenville, S.C. - who were misled that way.

In addition to the lawsuit, two executives of the American International Group, one of the world's largest insurance companies, pleaded guilty to criminal charges of rigging bids with Marsh.



While Mr. Spitzer's target yesterday was Marsh, he made clear that he was taking aim at a widespread practice in the insurance industry. "This investigation is broad and deep and it is disappointing,'' he said.



Mr. Spitzer suggested that he had also come across indications of wrongdoing in the sale of many kinds of personal insurance, including coverage on cars, homes and health insurance. "Virtually every line of insurance is implicated,'' he said.



The lawsuit names American International, or A.I.G., and three other insurers, as participants in the bid rigging and steering: the Hartford, a unit of Hartford Financial Services; Ace Ltd., which is based in Bermuda but is a major player in the American insurance market; and Munich American Risk Partners, a unit of Munich Re with offices in Princeton, N.J.



"There will be numerous criminal and civil cases,'' Mr. Spitzer promised.



Insurance is now the new financial battleground for Mr. Spitzer after recent crackdowns against conflicts of interest involving Wall Street analysts and abuses in trading mutual funds. The latest investigation has opened a rare window into a huge business of corporate middlemen. The role of insurance brokers is to get the proper insurance coverage at the best possible price for clients ranging from the giants of corporate America to regional businesses and mom-and-pop operations across the country. They receive commissions from the clients for arranging the coverage.



But decades ago, the brokers also began collecting fees from the other side of the deal, the insurers. Those fees were for steering a certain volume of business to an insurer or for arranging a particularly profitable form of coverage. Marsh reaped $800 million from these fees in 2003, the lawsuit says.



The investigation also threatens to embroil the insurance industry's remarkable family dynasty. Jeffrey Greenberg, 53, is chief executive of Marsh, while his brother Evan, 49, is chief executive of Ace.



Over several decades, the patriarch of the family, Maurice R. Greenberg, has converted A.I.G. from a small internationally oriented insurance company to one of the wealthiest and most powerful in the world. He had dreamed that he would eventually be succeeded by one of his sons.



But both Jeffrey and Evan left A.I.G. to strike out on their own after Mr. Greenberg, who is now 79 years old, showed no sign of intending to retire.



In a news conference yesterday, Mr. Spitzer was sharply critical of Jeffrey Greenberg, saying that he and other top executives of Marsh had initially misled his investigators. Mr. Spitzer said he did not try to negotiate a settlement with Marsh before filing the lawsuit.



"The leadership of that company is not a leadership I will talk with,'' an obviously angry Mr. Spitzer said. "It is not a leadership I will negotiate with.''



Through a spokeswoman, Jeffrey. Greenberg declined a request for an interview. In a statement, the parent company, Marsh & McLennan Companies, said: "We take very seriously the allegations made by Attorney General Spitzer.''



Shares of Marsh and A.I.G. and other insurers tumbled yesterday, dragging down the stock market. Marsh's stock price plunged 24 percent, or $11.28, to $34.85. Shares of A.I.G. fell 10 percent, or $6.99, to $60. The sell-off in A.I.G. accounted for nearly half the decline yesterday in the Dow Jones industrial average and was the steepest drop in the stock since the 1987 market crash. Hartford shares fell 6 percent, to $58.40, and Ace shares fell 9.5 percent, to $36.47.