Willis Pays $51 Million To Settle Fraud Problems

New York Attorney General Eliot Spitzer and Acting New York State Insurance Superintendent Howard Mills said the agreement with the nation's third-largest insurance broker included the firm's adoption of a new business model "designed to avoid conflicts of interest."

The settlement is the third of its kind that New York authorities have made with large brokerages. Previously New York-based Marsh & McLennan Companies–the parent of Marsh, Inc.–agreed to pay $850 million, while Chicago-based Aon agreed to pay $190 million.

Marsh was accused in a civil suit by the attorney general of bid-rigging, price-fixing and steering customers to insurers that cooperated with its scheme and made payoffs to the Marsh in the form of incentive fees and placement agreements.

Mr. Spitzer said that Willis had "moved quickly to remedy its problems. Its actions will help bring about greater transparency and accountability in the insurance industry. Willis Chairman Joseph Plumeri has demonstrated admirable leadership in spearheading Willis's response to the issues raised in our investigation and in implementing reforms at the company."

Mr. Mills added that "Willis has rightfully agreed to undertake a broad range of substantive business reforms which will benefit consumers by providing more disclosure to them about the services they are receiving. The corporate governance initiatives codified in the settlement will also ensure these changes are instituted appropriately."

The Attorney General's Office and New York Insurance Department said they had begun a joint investigation of Willis last spring as part of a broad investigation of "contingent commissions" and the steering of insurance contracts by insurance brokers.

They said their investigation revealed internal communications about efforts to maximize Willis's revenue and insurance companies' revenues "without regard to the interest of clients."

The agencies noted that in an October 2003 e-mail to Willis' regional marketing officers entitled, "Contingent Income Push," James Drinkwater, managing director of Willis Global Markets said: "I need you to drive this initiative–I want to see you directing the flow of business to these companies," and then named the insurers with which Willis had contingent fee agreements.

According to the attorney general and the department, the reforms adopted by Willis include a new policy whereby the company will accept one payment only for an insurance contract at the time of placement, and that such payments will be fully disclosed to, and approved by customers.

It was noted that Willis had begun to implement many reforms prior to the agreement announced today.

Willis N.A. is a division of Willis Group Holdings, a multinational financial services company based in New York.

The attorney general's and insurance department noted that their wide-ranging probe of the insurance industry is continuing. To date, 10 executives from four companies have pleaded guilty to criminal charges stemming from the probe.

The agencies said that their investigation led today to an Assurance of Discontinuance, which spells out the detals of the agreement. In that document it states that prior to modifying its business model Willis steered customers to preferred "Partner" carriers who signed contingent fee agreements and sent clients business through its wholesaler, Stewart Smith to inflate commissions, when it could have placed the business directly.

Also noted was a Willis communication explaining that insurers needed to understand that fee agreements were a reward for services that included providing "an unfair competitive advantage."Another portion of the document noted an internal Willis report stating special attention was being given to St. Paul, Chubb, Liberty Mutual, Hartfort and Crum & Foster due to special [PSA] agreeements."

A Willis spokesman did not immediately respond to a telephone call requesting comment. A statement from Attorney General Hatch quoted Mr. Plumeri as saying the brokerage is pleased to have resolved Minnesota's investigation, that it has addressed Mr. Hatch's concerns. His statement also noted that Willis was the first major brokerage to stop taking contingent fees.

Mr. Plumeri added that Willis believes, "all insurance brokers and insurers should relinquish the use of contingent agreements."

This article was updated 2:18 p.m.