Ten states, led by Texas and its Attorney General Greg Abbott, have come to terms with Zurich American, closing their probe into the insurer’s involvement in alleged bid-rigging and unfair compensation practices in the commercial insurance market.
The multi-state settlement finalized in Texas is part of a larger settlement requiring Zurich to pay $121.8 million in refunds to commercial policyholders in the U.S., fully disclose all compensation paid to commercial brokers and agents and implement various business reforms.
Zurich denies that its activities violated any laws and does not admit any liability but the insurer agreed to settle to avoid lengthy legal proceedings.
The multi-state coalition involved in this settlement includes the attorneys general of California, Florida, Hawaii, Maryland, Oregon, Texas, West Virginia, Massachusetts, Pennsylvania and Virginia, the Florida Chief Financial Officer and the Florida Office of Insurance Regulation.
Zurich has also agreed to stop engaging in the practices that the states allege resulted in violations for 10 years.
The multi-state investigation alleged the company participated in deceptive bid-rigging, price-fixing and other schemes in the commercial insurance market, orchestrated by Marsh & McLennan and other large brokers. In the process, large and small companies, nonprofit organizations and government offices that purchased commercial lines of insurance from Zurich were misled into believing they were receiving the most competitive commercial premiums available, according to the states.
“Today’s settlement brings greater transparency and fairness to the commercial insurance markets in Texas and across the nation,” said Attorney General Abbott. “This settlement paves the way for states to protect businesses from falling victim to the kind of deception that raised insurance prices above competitive levels.”
The states contended that 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. The brokers also engaged in anti-competitive conduct by steering contracts away from insurance companies that refused to participate in the scheme, the states said.
The states maintain that the scheme was successful because insurers such as Zurich failed to disclose to policyholders that they paid secret “contingency commissions” to the large insurance brokers.
With this multi-state settlement, Zurich is agreeing to end that secrecy by disclosing all compensation that it pays its agents and brokers for commercial lines business. It will deliver a compensation disclosure statement before a commercial insurance policy is bound. The statement shall disclose any base compensation paid, including the maximum percentage of the premium paid for each commercial policy. Also, the disclosure form shall inform insureds whether contingent compensation may be paid to the broker or agent, including the maximum percentage of contingent compensation that could be paid, the average percentage paid by the Zurich in the immediately preceding calendar year and the factors that Zurich will consider in determining the percentage of contingent compensation to pay.
Zurich will also pay $20 million to the investigating states to defray their costs and fees.
This multi-state settlement is separate from a three-state agreement Zurich signed with attorneys general for New York, Illinois and Connecticut, and the New York Department of Insurance. Under that agreement, which is called the Three-State Agreement, Zurich agreed to create an $88 million fund for policyholders that purchased or renewed excess casualty insurance policies, other than workers’ compensation policies, issued by Zurich through Marsh & McLennan Companies, Inc., or Marsh Inc., from Jan. 1, 2000 through Sept. 30, 2004.
Details on the various settlements involving Zurich can be found at:
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