Conn. AG Expands Insurance Probe to Municipalities

November 8, 2004

Connecticut Attorney General Richard Blumenthal is expanding his investigation into allegations that insurance bids were rigged by examining whether unlawful practices have affected municipalities in the state.

In a letter to each of Connecticut’s mayors and first selectmen, Blumenthal last week sought information on insurance they purchased over the past five years. He also asked for the name of any insurance broker that cities and towns used to procure insurance and the names of insurance companies that provided coverage.

“This investigation is aimed at uncovering and pursing potential bid-rigging and other unlawful practices that may have stifled competition and caused significant harm to unknowing insurance customers, including municipalities,” Blumenthal wrote in the letter sent to all 169 cities and towns.

The industry probe began when New York Attorney General Eliot Spitzer last month sued brokerage firm Marsh & McLennan Cos., accusing it of colluding with insurers to rig bids for commercial and public sector policies.

He said Marsh collected more than $1 billion in “contingent commissions” paid by insurance companies to steer business and shield them from competition. Spitzer also is investigating whether other large brokers, including Chicago-based Aon Corp., engaged in similar unlawful practices.

Blumenthal said he does not know of allegations by municipal officials who believe bid-rigging or other unlawful practices detailed in Spitzer’s lawsuit have occurred.

“We haven’t received complaints, but the victims of these abuses would be very unlikely to know of bid-rigging or price-fixing,” he said.

In Connecticut, when the town of Avon interviewed brokers last year to help purchase medical coverage, town officials learned that it was common for the insurance company selected to pay the town’s consulting fee to the broker, said Town Manager Philip Schenck Jr. .

“This was somewhat of a common practice out there, and we got into some discussions with these (brokers), and they said this is the way it’s done,” he said. “We said, we don’t want it done that way. We’re paying the consulting fees because you’re working for us.”

Avon hired Aon, but insisted that the town pay a $25,000 fee to the broker and that the broker receive no compensation from the insurance company selected by the town.

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