Insurance commissioners nationwide, including those from Virginia, Maryland and the District, waded into the growing industry scandal yesterday, holding a teleconference to coordinate the investigation and regulation of the way carriers reward brokers for sending them business.
California Insurance Commissioner John Garamendi also unveiled regulations that make clear brokers may not steer contracts to particular insurance companies for these so-called "contingent commissions."
Garamendi and New York Attorney General Eliot L. Spitzer, who last week charged broker Marsh Inc. with accepting kickbacks and rigged bids for corporate liability insurance, credited a District public interest group with alerting them to the issue.
The Washington Legal Foundation, a free-market-oriented public interest group, wrote Spitzer and Garamendi and others that the decades-old contingent commission system was creating unacceptable conflicts of interest. Spitzer's office then targeted Marsh, the nation's largest corporate insurance broker, after receiving an anonymous tip from an insider.
Since Spitzer brought civil charges against Marsh last Thursday, the scandal has engulfed large portions of the industry and sent insurance-related stocks downward.
Dutch insurer ING Group's stock fell 1.39 percent, to $25.49, yesterday after the company disclosed it had received a subpoena; Aetna Inc. shares tumbled 11 percent Tuesday after a similar disclosure; and Marsh parent Marsh & McLennan Cos. stock has sunk more than 40 percent since Spitzer's announcement.
Spitzer's office also has hit several other brokers and life, health and property insurance carriers with subpoenas asking for documents about the "contingent commissions" -- fees paid by insurance carriers to brokers who send them high-volume or high-quality business. Carriers Cigna, MetLife and Prudential, and brokers Aon Corp. and Willis Group all have confirmed receiving subpoenas.
The Marsh complaint also named but did not charge property insurers American International Group, Ace Ltd., the Hartford and American Re, citing e-mails in which the carriers discussed falsifying bids to help Marsh steer contracts to particular companies.
Nor is investigation confined to group or corporate insurance. Connecticut Attorney General Richard Blumenthal said his probe, which started in June, is focusing on health and automobile insurance, including policies sold to individuals.
In many insurance areas, companies and individuals hire brokers -- and pay them commissions -- to solicit and evaluate bids from insurance carriers, but many brokers also accept payments from the carriers for sending them high-volume or low-risk business. The carrier payments are not supposed to affect the brokers' recommendations, but state regulators are uncovering evidence to the contrary.