Updated from Oct. 14
Eliot Spitzer took aim at the insurance industry Thursday, charging a big broker in an alleged price-fixing scheme. The move continued to depress insurers' shares early Friday after huge declines Thursday.
The New York state attorney general alleged at a midday news conference that Marsh & McLennan (MMC - Get Report), one of the nation's biggest insurance brokers, had led an industrywide kickback and price-fixing scheme.
In a civil complaint filed Thursday in New York Supreme Court, Spitzer's office charged Marsh with fraud and taking billions in allegedly improper payments to steer work to a select group of insurers. Marsh is accused of putting its own financial interests ahead of its customers' in securing insurance coverage for them.One of the most serious allegations against Marsh is that it convinced other insurers to go along with a system of creating fictitious and noncompetitive bids in order to give the customer the appearance of a competitive marketplace for insurance coverage where one didn't exist. The lawsuit contends the rigged bidding process led to higher insurance premiums and fatter payments from the insurers to Marsh for steering the work their way. The charges against Marsh stem from a nine-month investigation that threatens to be as damaging to the insurance industry as Spitzer's earlier crusades against conflicts of interest on Wall Street and improper mutual fund trading. In conjunction with the suit against Marsh, Spitzer's office secured two guilty pleas from executives at American International Group (AIG - Get Report), who allegedly took part in the improper steering arrangements. The AIG executives agreed to cooperate with Spitzer in the ongoing probe that officials say is likely to lead to additional charges against other firms and individuals. Four insurers already in Spitzer's sights are AIG; The Hartford (HIG - Get Report); Ace Insurance, a unit of Ace Limited (ACE - Get Report); and Munich American Risk Partners. All were implicated but not charged in the complaint. "These charges go to the heart of Marsh's and the industry's business model," says Spitzer. "There was craven disregard for ethics and the law at some of our nation's largest companies."