Whats Next For Spitzer?

I keep waiting for the other shoe to drop in the bid-rigging probe of top brokers and insurers by New York Attorney General Eliot Spitzer.

I know Mr. Spitzer cashed in big time by convincing Marsh to create an $850 million policyholder restitution fund and substantially change the way the firm does business (although he failed to secure any admission of wrongdoing). I also hear that he and at least two other state attorney general offices are in settlement discussions with the next-biggest broker, Aonwhich, despite not being named in any of Mr. Spitzers public actions, set up a modest $50 million settlement fund.

But I cant shake the feeling that another major player is going to take a huge hit before this is all over. You see, Mr. Spitzer keeps racking up plea bargains. Indeed, when Marsh announced its settlement, we ran a story headlined: “Spitzer Says To Expect More Pleas.” Two weeks later, he made good on his threat, as three more industry scam artists pleaded guilty.

That brings to nine the number of mea culpas filed so far in response to Mr. Spitzers probesfour from AIG, two from Zurich American, two from Marsh and one from ACE. The problem is that all nine had their sentencing deferred, based on their anticipated cooperation in future trials.

What future trials? Who will be charged? When? For what? These are the lingering questions haunting an industry struggling to restore its tarnished reputation. The sooner we get on with this nasty business, the sooner insurers and brokers can put the scandal behind them.

What is Mr. Spitzer waiting for? There are two possibilities I can think of. One is that he doesnt have enough hard evidence to nail the party (or parties) he is still after and is stockpiling witnesses while putting the pieces of his case together.

The other is that he already has enough evidence and eyewitness testimony to use as leverage to force another major settlement along the lines of the one he negotiated with Marsh but is keeping the public in the dark while he hammers out the final details. Play ball with his office, he might have told his next target, or else he will move for a criminal indictment and file civil charges as well based on testimony from those who have already pleaded guilty, plus whatever smoking guns he pulled from company records.

This would be a potent threat, indeedespecially if his target is a publicly-traded company. Once Mr. Spitzer announces any accusations, the targets share value would plummetwith the loss perhaps dwarfing any proposed settlement. A trial could drag out for years, further destroying a companys reputation and viability along the way. A negotiated dealhowever embarrassing or costlymight seem like a blessing in comparison.

This is nothing more than idle speculation on my part, but why else would plea-bargainers be kept waiting for their sentences unless Mr. Spitzer has more brokers and/or insurers on the hot seat?

No matter what happens now, Mr. Spitzer has already forever changed the commercial insurance business, with greater disclosure the rule of the day and brokers left with billions to replace in discredited placement fees. Risk managers and regulators will be looking at broker and insurer behavior much more carefully.

The only question is how many more people are going to be taken down and how many more companies are going to pay through the nose before Mr. Spitzer turns his attention elsewhere?

Sam Friedman

Editor-In-Chief

Reproduced from National Underwriter Edition, February 25, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Whats Next For Spitzer?

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