Aon Corporation acknowledged the settlement it reached with officials in three states over investigations that questioned the large brokerage firm’s receipt of contingent commissions from insurers by apologizing for but not admitting to any wrongdoing.
Aon officials also noted that no Aon employees are facing criminal charges.
The settlement with New York, Connecticut and Illinois officials calls for Aon to pay $190 million into a fund to reimburse insureds that may have been affected by practices related to contingent fees on policies started or renewed between Jan. 1, 2001 through Dec. 31, 2004. Policyholders have until October 30, 2005 to file for the reimbursements.
The agreement, similar to the $850 million deal agreed to by Marsh with New York officials, sets up a new business model that prohibits contingent fees in the future and establishes procedures for greater disclosure of all compensation to buyers. Aon had previously eliminated contingent fees effective Oct. 1, 2004.
Aon noted that it admitted no wrongdoing or liability and that the settlement includes no fines or penalties. The company noted as well that no employees have been charged with criminal conduct and it does not expect that any will be.
Patrick G. Ryan, chairman and chief executive officer of Aon, told analysts after the settlement that his company did not agree with all of the allegations made in the complaint that was filed with the settlement but that it wanted to put the matter behind it.
Ryan said that no Aon employee has been charged with price fixing, bid rigging, soliciting fictitious quotes or tying the sale of one product to another.
“While we do not agree with a number of allegations in the complaints, the settlement permits us to look to the future,” Ryan said. “I believe that the business reforms emerging from these investigations establish a model that can be – and should be—embraced by the whole industry. Clients have every right to expect transactions that are transparent and free of even any appearance of conflicts of interests.”
The complaint by New York Attorney General Eliot Spitzer includes allegations of steering accounts to favored insurers, tying retail business to reinsurance, suggesting fake quotes and other charges.
While Ryan took issue with some of the allegations in the complaint, the settlement contains the following apology from Patrick G. Ryan, chairman and chief executive officer of Aon:
“As these investigations have revealed, Aon and other insurance brokers and consultants entered into contingent commission agreements and other arrangements that created conflicts of interest. I deeply regret that we took advantage of those conflicts. This conduct violated the longstanding principle embodied in our Code of Ethics and Aon’s Values Statement that our clients must always come first. Such conduct was improper and I apologize for it.”
While Aon’s new business model may mirror what Marsh said it would do in terms of compensation disclosure, unlike Marsh, Aon is not vowing to use standard commissions per line of insurance. Ryan said Aon would make its commissions known but that they will still be a matter of negotiation with carriers.
Aon does not anticipate any employee layoffs as a result of the agreement. Ryan also said the company is not considering selling its reinsurance unit.
While the settlement is intended to be nationwide, there are still more than 15 states with investigations into Aon in progress, officials noted, adding they would now begin to discuss the settlement with those states.
The statement by Ryan that is part of the settlement also says that the investigations by the state attorneys generals and regulators “have done the industry a great service.”
Aon has established a reserve of $180 million, representing the present value of the $190 million that will be set aside to return to policyholders. Separately, Aon has set up a $40 million account for litigation matters. It said it expects the financial impact of these settlements to be about $0.32 cents per diluted share and recorded in the fourth quarter 2004.
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