ERC’s Internal Investigation Turns Up ‘Isolated’ Bid Rigging

By | November 24, 2004

A five-week internal investigation at Kansas City, Mo.-based commercial-lines carrier Employers Reinsurance Corp. has so far uncovered “isolated instances” of bids inflated at the request of Marsh Inc. brokers, according to a spokesman contacted by IJ.

There were fewer than 10 occasions over a four-year period in which two ERC employees inflated bids at the request of Marsh brokers, according to spokesman Dean Davison. One of the employees left the company three years ago, and the other has been suspended as a result of the investigation, Davison said. He said the actions were a violation of the company’s integrity policy.

The inflated bids were for quoted premiums of less than $1 million total, compared to the insurer’s 2003 premium volume of $9.7 billion. An outside forensic law firm has been assisting ERC in its investigation, which is ongoing and not limited to interactions with Marsh. So far, Davison said, the bid rigging appears to be “isolated and confined” to these instances.

“We take this matter very seriously,” he said. “We will continue to explore and to work to determine if we have other issues.”

Last week, ERC received a subpoena from the Spitzer’s office in conjunction with its ongoing review of industry-wide insurance practices relating to brokers. A spokesman from Spitzer’s office said the information provided by ERC might prove useful in its case against Marsh, though he would not comment specifically on whether the insurer’s coming forth with information would protect it from charges down the line.

On the related matter of contingent commissions, which Spitzer has blamed as responsible for giving Marsh brokers the incentive to rig bids, ERC gave Marsh $7.2 million in such compensation last year, compared to the beleaguered brokerage’s total of $845 million.

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