New York Attorney General Eliot Spitzer’s investigations are sending broadening shock-waves through the property-casualty insurance industry, claiming the chairman of the word’s biggest insurance broker and reportedly soon to ensnare the second-biggest one.
On Monday, Jeffrey Greenberg, chairman and chief executive officer Marsh & McLennan Cos., stepped down, the online edition of The Wall Street Journal reported. Greenberg is being replaced by Michael Cherkasky, CEO of the company’s Marsh Inc. insurance broking unit, the newspaper said. Marsh, which two weeks ago was accused by Spitzer of rigging bids, did not immediately return calls seeking comment, according to Reuters.
The insurance-brokerage industry’s woes reportedly might be widening. Civil charges could be brought against the world’s second-largest insurance broker within two weeks, according to The New York Times.
Spitzer’s investigators have found proof that brokers steered business to insurers that paid the company incentives, according to the newspaper. They also reportedly discovered that Aon was employing the practice of tying, in which brokers threaten to stop recommending an insurance carrier’s policies unless the insurer agrees to use the broker to place the carrier’s own reinsurance.
Steering and tying could violate New York’s fraud and antitrust laws, which could affect Chicago-based Aon, since they apply to any company conducting business in the state, according to the paper.
While investigators have found antitrust-type violations at Aon, they unearthed no evidence of bid rigging and price fixing, the Times reported. “Bid rigging and price fixing are an absolute per se violation of antitrust laws,” John Coffee, a Columbia University specialist on securities law, told the paper. “Steering and tying are in a gray area.”
Gary Sullivan, a spokesman for Aon, declined to comment to the Times on Sunday.
Aon and Marsh are said to control more than 70 percent of the insurance brokerage market, according to the newspaper.
What’s more, lawsuits may be filed against a number of smaller insurance brokers as a national investigation of the business’ practices expands, it reported.
Spitzer’s probes of p/c insurance companies are also burgeoning. The New York attorney general has subpoenaed St. Paul Travelers Companies Inc., asking for documents and looking for information relating about how business between insurance brokers and the insurer is conducted, St. Paul stated.
“Given the company’s size and position in the property casualty insurance industry, we do not believe it is surprising that St. Paul Travelers has been included among the companies asked to provide information. St. Paul Travelers will cooperate fully with the attorney general’s requests for information,” according to the company.