Risk Management

Ace Ltd. to Pay Out $49M for Bid Rigging

Ace Ltd. "created a false appearance of market competition and cheated consumers out of millions of dollars," according to the Pennsylvania attorne...
Stephen TaubMay 15, 2007

Ace Ltd. has agreed to pay an added $9 million to Pennsylvania to settle charges of bid rigging and other improper underwriting practices, according to state attorney general Tom Corbett.

Under a previous agreement, the Bermuda-based Property/Casualty insurer will also pay back policyholders $40 million for those practices, which occurred between 2000 and early 2004, added Corbett.

In a similar case last year, Ace paid $80 million to settle charges with New York, Connecticut, and Illinois and pay restitution to policyholders.

Ace took part “in a scheme with various insurance brokers to falsify quotes in order to easily steer business to preferred insurers, in exchange for the same thing in return,” the attorney general said. The bid rigging “created a false appearance of market competition and cheated consumers out of millions of dollars.”

Ace also employed “contingent commissions” — payments from insurers to brokers and agents, in addition to their base commissions — according to Corbett. In return, the brokers allegedly agreed to steer policies to Ace and to increase premiums on existing policies.

Under the settlement, Corbett added, Ace will now upon request disclose to any client all compensation to a broker or non-exclusive agent on that client’s insurance business.

“This settlement is an important step toward closure of the insurance industry investigations that began in 2004,” said Ace general counsel Robert Cusumano, in a statement. “The settlement also reinforces our belief that the reforms and guidelines that the company put in place two years ago continue to be state-of-the-art safeguards that the regulatory community will embrace.”

The settlement will be paid from reserves set aside in prior quarters and will have no effect on Ace’s financial results for 2007, according to the company.