St. Paul Travelers Is Latest Insurer Subpoenaed

By Mark E. Ruquet

NU Online News Service, Oct. 25, 3:35 p.m. EDT?A ninth insurer said it has received a subpoena from New York State Attorney General Eliot Spitzer in the continuing probe of broker-insurer price fixing.[@@]

Meanwhile, one insurance expert said the fallout from the investigation could well be job losses and brokers whose bottom lines are impacted.

The St. Paul Travelers Companies Inc. said it has received a subpoena requesting documents and information into contingency fees paid by the insurer to brokers.

"Given the company's size and position in the property-casualty insurance industry, we do not believe it is surprising that St. Paul Travelers has been included among the companies asked to provide information," the St. Paul, Minn.-based carrier said. "St. Paul Travelers will cooperate fully with the attorney general's requests for information."

Last week, Liberty Mutual said it, too, has received a subpoena from the New York attorney general's office.

The Boston-based carrier said "it is entirely to be expected that we would be asked about our sales practices," adding that it is cooperating in the investigation.

In a lawsuit the attorney general has charged that Marsh brokerage was rewarded with payoffs from insurers as part of a system in which the broker fixed prices, rigged bids and steered business to carriers at inflated prices.

The company said it is conducting its own internal review and has "found no evidence of bid rigging or other illegal practices."

To date, the other companies that have said they received subpoenas from Mr. Spitzer's office include American International Group, Chubb, Fireman's Fund, The Hartford Financial Group, MetLife Inc., Aetna Inc., and CIGNA Corp. Other companies have been implicated in Mr. Spitzer's suit, including Ace and Munich-American Re.

Three insurance executives, two from AIG and one from Ace, have pleaded guilty to charges and are cooperating in the probe.

Aon, Willis and Hub Group's subsidiary Kaye Insurance have also said they received subpoenas. It has been reported that a number of privately held brokerage firms have also received subpoenas, but none have said so publicly.

Mr. Spitzer has indicated that his office's investigation is wide-ranging and could touch many areas of the industry.

Robert P. Hartwig, vice president and chief economist for the Insurance Information Institute Inc., based in New York City, said he is not surprised to hear that St. Paul Travelers received a subpoena and expects that before the investigation winds down most major insurers will receive requests for information concerning contingency fees.

Mr. Spitzer's suit, he continued, is already affecting the industry after the three major brokers said they would no longer accept contingency fees?and Mr. Hartwig said he expected others to follow.

Other reactions, he said, will come from changes in management, largely in the brokerage community, where he believes high level executives could be replaced. Among insurers, he did not think the scandal would cost chief executives their jobs, but felt there could be some lower-level changes.

There could also be some job losses as brokers seek to keep their bottom line intact and adjust to new compensation schedules that involve fees for services to replace the lost income from contingencies, he said.

As Jan. 1 renewals come around, chief financial officers will expect their risk managers to show they are "being tough," getting the best product for the best price, which will mean shopping around the brokers and insurers.

"At the end of the day, businesses need insurance and there are not going to be any new brokers in the industry between now and Jan. 1^st," observed Mr. Hartwig. "It's going to be the same buyers, buying from the same brokers, but we might see a lot of musical chairs by the end of the year when it comes to accounts."

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St. Paul Travelers Is Latest Insurer Subpoenaed

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