HRH & Hub Report Investigations Continuing
By Mark E. Ruquet
NU Online News Service, March 24, 3:32 p.m. EST?Two insurance brokers said they are undergoing a number of inquiries from either state attorneys general or regulators looking into possible illicit fee transactions.[@@]
Chicago-based Hub International and Richmond, Va.-based Hilb, Rogal and Hobbs (HRH) reported on the investigations as part of their 10-K filings this month for the year ending 2004.
Hub said that its subsidiary, Kaye Insurance Associates Inc., has received three subpoenas from New York Attorney General Eliot Spitzer's office requesting information about contingency fees paid by insurers.
One subpoena specifically asked for information concerning "fictitious" and "inflated" insurance quotes that the broker may have been a party to.
Mr. Spitzer recently obtained settlement agreements from Marsh & McLennan Corp. and Aon Corp. over alleged contingent fee abuses involving price-fixing and steering of clients to selected insurers who made placement agreement payments to brokers.
The settlements amount to close to $1 billion to be paid to clients affected by the abuses and stipulate other internal reforms.
Hub said it hired outside counsel to look into the matter at both Kaye and other subsidiaries of the firm. The investigation at Kaye has "substantially" been completed while the other inquiries are ongoing.
"To date, management is unaware of any incidents of falsifying or inflating insurance quotes," the filing said.
Hub said it received inquiries or subpoenas from authorities in California, Connecticut, Texas, Illinois, Delaware, Pennsylvania, New Hampshire and Quebec, Canada, between August 2004 and February 2005.
The firm is also a defendant in three major civil suits related to the alleged abuses.
HRH reported it has not received a subpoena from Mr. Spitzer's office, but it has received subpoenas from attorneys general in Florida, Massachusetts and North Carolina. HRH said it has received requests for information from insurance departments in 10 states and could receive more subpoenas or requests for information from other states in the future.
The company said that 19 percent of the $42.4 million it received in contingent commissions in 2004 consisted of volume-based placement agreements. Such agreements were the basis for the alleged abuse at MMC and Aon.
As of Jan. 1 of this year, those agreements were converted to standard profit sharing agreements. The company said it did not know how the change would affect earnings.
Contingency fees accounted for less than 7 percent of the firm's revenue.
HRH added that it is continuing its own internal investigation into fee issues with an independent legal counsel.
Both firms said that they continue to cooperate with the investigations.
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