ACE will pay Pennsylvania $9 million to settle allegations of bid rigging against clients, the state's attorney general said.
Attorney General Tom Corbett reported today that Bermuda-based ACE Limited, which has its U.S. headquarters in Philadelphia, has reached a settlement with his office and the Pennsylvania Department of Insurance requiring it to cease any kick-back practices, including providing false or fictitious bids or quotes.
The agreement also calls for the company to fully disclose insurer compensation information to present and prospective policyholders, and to set-up a toll-free number for customers to call for information about compensation arrangements.
ACE's settlement comes as a result of practices with major insurance brokers that the company was allegedly involved in between 2000 and 2004. During that period, insurance brokers at New York-based Marsh were accused of rigging bids and steering contracts to insurers in return for lucrative volume-based contingent commissions.
"This shrewd business tactic created a false appearance of market competition and cheated consumers out of millions of dollars," said Mr. Corbett in a statement.
"The bid-rigging that ACE engaged in in this scheme essentially raised premium prices for insurance customers and steered business directly to themselves, which stifled competition without the policyholders' knowledge," he added.
ACE did not admit any wrongdoing, but did say certain employees violated "acceptable business practices" and the company's own standards. ACE has apologized for such behavior.
The scheme was uncovered by Attorney General Eliot Spitzer, who reached settlements with a number of brokers and companies over the steering of contracts. Mr. Corbett said ACE has paid $40 million to affected policyholders.
Pennsylvania Acting Insurance Commissioner Randy Rohrbaugh said the company is paying a $6 million penalty, and the remaining $3 million will be used as restitution to consumers and to cover the cost of the investigation.
Mr. Rohrbaugh said the settlement is the largest of its kind in the state
"We believe that the strict controls ACE has put in place, which we will continue to monitor, will provide greater protection to consumers from illegal bid-rigging," he stated.
"This settlement is an important step toward closure of the insurance industry investigations that began in 2004," said Robert F. Cusumano, ACE Limited general counsel in a statement.
He added that the company is "pleased to be able to resolve these issues with our primary insurance regulator after an investigation that has extended over several years and included thousands of documents and dozens of interviews."
Mr. Cusuman said the settlement also "reinforces our belief that the reforms and guidelines that the company put in place two years ago continue to be state-of-the-art safeguards that the regulatory community will embrace."
ACE said the settlement would be paid from reserves set aside in prior quarters, and it will have no effect on the company's 2007 financial results.
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