Spitzer blasts 'corrupt' insurers

Shares in Marsh & McLennan and big insurers fell dramatically yesterday after Eliot Spitzer, the New York attorney-general, accused the insurance industry of widespread corruption and anti-competitive practices.
Mr Spitzer said that companies were rigging business, stifling competition and cheating customers as he brought a lawsuit against Marsh, the world's biggest insurance broker, and named four other companies -ACE, AIG, The Hartford, and Munich American Risk Partners - as participants in the lawsuit.
The suit claimed that Marsh had duped "unsuspecting clients" by steering them to insurers with which it had "lucrative pay-off agreements" since at least the late 1990s.
Shares in Marsh & McLennan, Marsh's parent company, which also owns Mercer Management consulting and Putnam, the Boston mutual fund firm, lost more than a quarter of their value on news of the investigation.
Shares in the group, which is headed by Jeff Greenberg, fell by almost 25 per cent to close at $34.85. Meanwhile, shares in AIG, the world's largest insurer by market capitalisation, which is led by his father Hank Green-berg, dropped by about 11 per cent to close at $60.
Shares in the two other top insurance brokers also fell sharply. Aon shares fell 16 per cent to close at $23.18 while Wil-lis fell 7 per cent to close at $34.48. "The insurance industry needs to take a long, hard look at itself . . .there is simply no responsible argument for a system that rigs bids, stifles competition and cheats customers," Mr Spitzer said. "Where is the ethical compass of this industry?"
Earlier this year Aon and Wil-lis received subpoenas from Mr Spitzer's office demanding information about payments they regularly receive from insurers for bringing in business.
Mr Spitzer's complaint, which was filed in New York state's supreme court, accused Marsh of designing a plan under which selected insurers paid more than $lbn (£560m)in separate commissions in exchange for more business and protection from competitors. Last year, such payments accounted for about $800m, or more than one-third of earnings at Marsh, which reported $1.5bn in net income.
According to Mr Spitzer's office, Marsh often asked insurers for falsified quotes for insurance contracts to deceive customers into thinking competition had taken place. The group also promised to protect favoured insurers from competition. In email messages, senior Marsh executives openly discussed the need to place its business with insurers that "have superior financials, broad coverage and pay us the most".
Marsh &McLennan said it had not been made aware of the lawsuit until yesterday. "We are committed to getting all the facts, determining any incidence of improper behaviour, and dealing with any wrongdoing," the firm said. Two executives from AIG have already pleaded guilty to one count each of fraud.
Hartford Financial shares fell 4 per cent to $58.52, while shares in Ace fell 9.5 per cent to $36.47.
Negatives hit investors, Page 42