New York Attorney General Eliot Spitzer’s sweeping probe into price-fixing and bid-rigging among insurance brokers and insurers is also delving into the activities of insurance consultants, an investigator said on Thursday.
Last week Spitzer, who has challenged long-standing practices in Wall Street research and the mutual fund business, announced a lawsuit against Marsh & McLennan Cos. that accused the world’s largest insurance broker of steering business in exchange for secret fees.
Spitzer said then that the probe would eventually extend to every part of the insurance industry.
The investigator, who requested anonymity, said “dozens” of subpoenas have been issued since the beginning of this year by the attorney general’s office to insurance brokers and property-casualty insurers.
In more recent months, the dragnet was widened to include life and health insurance firms as well as consulting firms that advise companies on insurance and benefits plans.
Boston-based Marsh, the parent of broker Marsh Inc., also owns Mercer, a leading corporate consulting business.
“We are looking at Marsh & McLennan very broadly in its connection to the insurance industry,” the official told Reuters on Thursday. “We understand Mercer does a fair amount of insurance consulting and employee-benefits consulting and we’re looking at those areas as well.”
Marsh finds itself at the center of a probe challenging the practice of brokers accepting fees — known as contingent commissions or placement service agreement (PSA) fees — from insurers. Spitzer said Marsh steered business to insurers on the basis of these fees rather than which insurer offered the best price.
Spitzer’s office is looking into fees paid by insurers to consultants, known as “overrides”, for their efforts in advising companies in setting up insurance plans and placing insurance policies.
“We view those to be very similar to the contingent commissions or PSAs,” the investigator said. “We’ve found enough (evidence) in those areas that we’re continuing to pursue leads.”
Marsh & McLennan officials were not immediately available for comment.
In March and April, Marsh and several other major insurance companies disclosed they had received subpoenas from Spitzer’s office seeking information. The queries focused on business practices that, while widespread and routine within the industry, were little known to the public.
In May, for example, reports revealed that insurers often paid fees to consultants who advised companies on where to buy policies for employees. Spitzer argues that these payments, whether to brokers or consultants, represent a clear conflict of interest and have likely led to inflated costs for clients.