Texas Attorney General Greg Abbott reported that Texas and eight other states have reached a $171 million settlement with Zurich American Insurance Co. relating to bid-rigging and price-fixing in the commercial insurance market.
The settlement means that policyholders in the nine states will receive more than $150 million in refunds. An estimated $11 million of that total will be directed to Texas commercial policyholders, while affected Florida policyholders will receive approximately $8 million. Pennsylvania commercial policyholders of Zurich are expected to receive approximately $10 million, according to that state’s insurance commissioner, Diane Koken. Zurich will pay an additional $20 million in investigative costs to the nine states.
The other states involved are California, Florida, Hawaii, Maryland, Massachusetts, Oregon, Pennsylvania and West Virginia. The final terms of the settlement are subject to court approval and will be enforced through a judgment in state court.
The case is one of several that emerged from initial investigations by New York officials into practices at Marsh & McLennan, the giant insurance broker.
Zurich does not admit to any violation of U.S. federal or state laws as part of the settlement.
The National Association of Insurance Commissioner’s Broker Activities Task Force assisted in the development of the settlement and is urging all state regulators to consider joining it, according to Zurich officials. They said Zurich is engaged in discussions with other state authorities and hopes to bring these to a successful resolution.
Florida’s Abbott said that Zurich willingly provided fake quotes to businesses and in return was given protection from competition so it could set “artificially high premiums and profit on other lucrative accounts.”
Marsh served as a broker in the transactions, the attorney general said.
“Businesses shopping for commercial insurance were deceived into believing they were getting the best deals available,” said Abbott. “The whole anti-competitive scheme was an intentional smoke screen by several insurance players to artificially inflate premiums and pay improper commissions to those who brokered the deals.”
The states’ probes revealed that Zurich failed to disclose it paid “contingent commissions” to insurance brokers and conspired with brokers at the center of the conspiracy in a “pay-to-play” scheme to overcharge commercial policyholders for their insurance policies.
Zurich allegedly participated in a scheme said to have been devised by broker Marsh to give commercial policyholders the illusion of a legitimate competitive bidding process on policies. In fact, Marsh had secretly pre-designated certain insurers to win bids, but the results for the policyholders were actually inflated rates, not best bids, officials contend.
For its part, Zurich showed a willingness to submit fake quotes and was rewarded with protection from competition so it could set artificially high premiums and profit on other lucrative accounts, according to the attorney general. The brokers also engaged in anti-competitive conduct by steering contracts away from insurance companies that refused to participate in the scheme, the suit alleges.
The victims of the bid-rigging scheme were large and small companies, nonprofit organizations and government offices that purchased commercial lines of insurance from Zurich.
In addition to making restitution, Zurich has agreed to disclose contingent commission payments in the future and reform the company’s business practices, the Texas official reported. Zurich said it will implement a pre-binding disclosure mechanism whereby brokers and agents inform customers of any compensation arrangements, along the lines of an NAIC task force-approved model.
“We are pleased that today’s announcement brings a greater sense of clarity and transparency to the quoting process for our customers in the United States, and we look forward to working collaboratively with our producers and business partners in this new environment,” commented James J. Schiro, Zurich chief executive officer in a statement.
The settlement with the nine states is meant to work in conjunction with a proposed settlement between Zurich and plaintiffs in a nationwide class action against commercial insurers and brokers now pending in U.S. District Court of the District of New Jersey. In October, 2005, Zurich and lead plaintiffs in that suit entered into a memorandum of understanding under which Zurich would pay $100 million into a settlement fund, as well as pay attorneys’ fees. The latest nine-state agreement increases the size of that settlement fund to $151.7 million. In addition, Zurich will pay $20 million to the state attorneys general for costs.
“As insurance consumers we all deserve to know that the prices we pay aren’t being wrongfully inflated by backroom shenanigans and secrets,” said California Insurance Commissioner John Garamendi.
“This is another victory in our efforts to restore integrity and accountability to insurance markets,” said Florida Attorney General Charlie Crist. “All businesses, large and small, as well as their customers, lose when unnecessarily high premiums and hidden commissions are paid.”
The Florida Attorney General’s Office also continues to investigate other brokers and insurers that are believed to have engaged in these schemes. On March 14, the Attorney General filed a racketeering and antitrust lawsuit against the broker Marsh & McLennan Companies, Inc.
A Marsh attorney said the Florida suit never should have been brought because it brings up charges Marsh has already settled.
Source: Texas, Florida Attorney General, Zurich Financial Services, California Department of Insurance