Pennsylvania Attorney General Reaches Multi-State Agreement With AIG

Agreement Settles Bid-Rigging Charges With Insurer

January 29, 2008 -- HARRISBURG - A multi-state agreement was reached today with a large insurance carrier involved in a "pay to play" scheme devised by insurance broker Marsh & McLennan.

Pennsylvania Attorney General Tom Corbett said that American International Group, Inc. (AIG) agreed to pay a multi-state task force $12.5 million in settlement of the states' claims. Pennsylvania will receive $2.6 million.

Corbett said that the multi-state investigation revealed that AIG participated in widespread, deceptive bid-rigging, price-fixing and other schemes in the commercial insurance market, orchestrated by Marsh & McLennan.

In the process, large and small companies, non-profit organizations and public entities that purchased commercial lines of insurance from AIG were often misled into believing they were receiving the most competitive commercial premiums available.

"AIG participated in a scheme to overcharge policyholders for the commercial insurance policies," Corbett said. "This shrewd business tactic created a false appearance of market competition."

Corbett said that Marsh had secretly pre-designated certain insurers to win bids, but the results for the policyholders were actually inflated rates, not competitive bids. The scheme was successful because insurers such as AIG earned its preferred status by paying "contingency commissions" to insurance brokers but failed to disclose those payments to policyholders.

Prior to the settlement, AIG paid out compensation for overcharges to a nationwide group of policyholders and adopted significant business reforms that govern its bidding and underwriting practices. AIG will be required to abide by those reforms.

Corbett noted that AIG has cooperated with the multi-state task force and agreed to provide assistance to the states as they continue their investigation. The agreement however, does not resolve any claims the Pennsylvania Insurance Department has against AIG.

Participating in the task force and the agreement were the Attorneys General from Texas, Florida, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Pennsylvania, West Virginia and the District of Columbia.

The Commonwealth's case was negotiated by Chief Deputy Attorney General Jim Donahue of the Attorney General's Anti-Trust Section.

Source: Pennsylvania Attorney General