Greenberg: Broker Scandal Won't Hurt AIG
By Daniel Hays
NU Online News Service, Oct. 15, 2:24 p.m. EDT?The brokerage-insurer price fixing scandal will have no long-term impact on American International Group, the company's chairman, Maurice Greenberg, declared today.[@@]
"Our business will continue to go as it has in the past," he told an analysts conference the day after two executives of an AIG subsidiary pleaded guilty to felony fraud charges. Their pleas followed New York Attorney General Eliot Spitzer's filing of a civil suit accusing Marsh, world's biggest insurance brokerage, of fixing prices with the help of major insurers that included AIG.
"No one in senior management knew anything about this," said Mr. Greenberg. He added that after the firm was subpoenaed by Mr. Spitzer's office, AIG conducted an investigation and had finally "uncovered two employees" in the American Home excess casualty department who acknowledged placing bogus bids. AIG then notified the Attorney General's office.
According to the Attorney General's lawsuit, Marsh obtained fake high bids to convince customers they had shopped their coverage. In return, Marsh is accused of channeling business to insurers that provided the bogus quotes. Marsh was paid hefty contingency commissions that were in essence kickbacks, it was alleged.
Mr. Spitzer has said the guilty pleas and the suit against Marsh are the start of a probe into what he characterized as pervasive corruption in the insurance industry.
Asked what he saw as the investigation's impact on AIG at the end of the day, Mr. Greenberg responded: "Nothing. Our business will continue to go as it has in the past. We are cooperating with the Attorney General."
He said that after the investigation began in April, the company had approached the New York Insurance Department with a copy of Marsh's placement service agreements and asked for guidance because "we wanted to make sure it wasn't a conflict," but the department had so far not responded.
The issue of placement service agreements, he said, is "something that has troubled us. Obviously it has led to some improper practices." In the future, the company will "likely pay a straight commission" and will not participate in placement service agreements, Mr. Greenberg added.
He said he believed that the payment of the controversial fees by his firm had not "added very much to the acquisition cost to the company" and "in the context of AIG it was not huge."
After Mr. Spitzer announced the investigation, AIG's stock price, which was trading in the $67 range dropped nearly $10?a decline of roughly 15 percent as this story was posted.
Mr. Greenberg said the two employees who pled guilty to fraud charges–Karen Radke, vice president of excess casualty, and Jean Baptist Tateossian, manager of national accounts–"have been put on leave."
At the time he spoke, he was the only industry executive whose firm was mentioned in the inquiry to step forward and answer a range of questions about it. Other insurers that have been mentioned include ACE, AIG, The Hartford and Munich American Risk Partners.
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