Ken Paxton

Tuesday, January 29, 2008

Attorney General Abbott Settles Bid-Rigging Charges With Insurance Carrier

AUSTIN - Texas Attorney General Greg Abbott today settled a bid-rigging investigation with insurance carrier American International Group Inc. (AIG). Under the agreement, the company must end its involvement in a bid-rigging scheme engineered by broker Marsh & McLennan and pay $12.5 million to nine states and the District of Columbia. Texas will receive more than $3.7 million under the settlement.

The agreement, spearheaded by Texas Attorney General Abbott’s Antitrust Division, requires AIG to reform its business practices, including disclosing to its customers the precise amount of compensation it pays to insurance brokers. The investigation found that AIG participated in deceptive insurance bid-rigging, price-fixing and other schemes in the commercial insurance market. Marsh & McLennan devised the scheme to mislead large and small companies, nonprofit organizations and public entities into believing they were receiving the most competitive commercial premiums available.

Unlawful bid-rigging schemes undermine the integrity of our free market system, said Attorney General Abbott. We will continue working to protect competition and foster economic growth in Texas.

Prior to this settlement, AIG paid restitution to a nationwide group of policyholders, including those in Texas who were harmed by its scheme.

The Attorney General’s investigation focused on AIG’s failure to disclose contingent commissions it paid to insurance brokers. Broker Marsh & McLennan devised a scheme that gave commercial policyholders the appearance of a legitimate competitive policy bidding process. In fact, Marsh secretly pre-designated certain insurers to win bids, and the results for policyholders were actually inflated rates, not competitive bids. The anti-competitive scheme succeeded because insurers such as AIG earned preferred status with Marsh by paying the contingent commissions to insurance brokers, which it failed to disclose to its policyholders.

The Attorney General’s enforcement action also alleges that AIG entered into an illegal agreement not to compete against Allied World Assurance Co., another surplus lines property and casualty insurer. That scheme resulted in an unreasonable restraint of trade. While the other states did not elect to bring those charges against AIG, the company paid Texas $500,000 to satisfy the Attorney General’s concerns about this conduct.

Other states participating in the settlement are Florida, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Pennsylvania, West Virginia and the District of Columbia.