The New York attorney general Eliot Spitzer told a US senate yesterday his probe into the US insurance industry showed “there is ample precedent for Congress to investigate the industry and undertake reform.”
Speaking before a US Senate panel, Spitzer said his investigations had uncovered that “many brokers, with the assistance and collusion of the insurance companies, engage in systematic fraud and market manipulation” to steer profitable business to a few selected insurance companies.
The attorney general said with Marsh, Aon and Willis in control of two-thirds of the global brokerage market “a network of interlocking connections and secret payments” had been created to ensure that business was steered to certain insurers and profits remained high.
In setting out the findings of his investigations into Marsh & McLennan Companies and United Life Resources (ULP), Spitzer said:
·Brokers mislead clients about the nature of contingent commissions that “provide little or no value or service to insurance carriers”
·Smaller brokerages enter into contingency commission agreements in order to steer business
·Entering into lucrative contingent commission agreements contributes to the rising cost of premiums
·Contingent commissions are active in every sector of the insurance business examined
·Reinsurance markets are also driven by contingency agreements, pushing up the cost of premiums for clients
·Brokers can be paid profitable sums for steering clients to certain insurers, such payments are often undisclosed
·The contingent commission practice “distorts competition” by turning the insurance markets into an “insiders club, where business is steered to a select few insurance carriers who are willing to pay”
·The pressure to deliver business through contingent commissions leads brokers to engage in bid rigging and market manipulation
·Marsh limited competition by arranging for insurance carriers to refrain from bidding on certain accounts
·There was evidence that Marsh and Universal Life Resources enforced or proposed “no shopping” agreements to prevent brokers from looking for alternative policies when they come up for renewal
Spitzer said steering business means the clients are “not always getting the best coverage for their needs.”
He also said his investigations showed the market as being an “interlocking network of insurance brokers and insurance carriers”, which creates a secretive industry based on “hidden payments and preferential treatment”.
The attorney general said Congressional action would help to avoid business dysfunction and collapse that has plagued other US industries.
It would also help to control “soaring insurance prices” for the US consumer, he said.
