The Hartford Financial Services Group said yesterday it agreed to pay $115 million and eliminate contingent commission payments to settle market-timing and bid-rigging investigations by state and federal authorities.
The insurer's announced agreement with New York, Connecticut, Illinois and the Securities Exchange Commission involves paying a combination of restitution and penalties to settle allegations its commercial property-casualty business involved steering insurance contracts and bid-rigging.
But the bulk of the payment will go to resolve market-timing issues on variable annuity contracts. The company neither admitted nor denied any wrongdoing.
The carrier will pay $5 million into a fund to compensate policyholders for allegations that it engaged in steering or bid-rigging of insurance contracts between 2001 and 2004. The company agreed to pay $26 million in penalties and $84 million to a restitution fund for market-timing allegations covering 1998 to 2003.
On contingent commissions, The Hartford said it will implement a new program beginning in 2008 in certain commercial lines of insurance where 65 percent of the U.S. market does not pay contingent compensation.
Investigators have charged that such payments were paid by insurers as a hidden reward for steering business their way.
The company said it will pay a fixed commission, set prior to the sale of a particular insurance policy, "that is set among other things on an agent or broker's past performance."
In a letter to agents the company said that all contingent commission agreements will be honored through 2007. The commission programs will cover personal lines business and other commercial lines including boiler and machinery, financial guarantee, select customer, middle market and marine. More details on the program will be given to agents later in the year.
The settlement ending investigations that include a Securities and Exchange Commission inquiry does not conclude a probe being conducted by Connecticut Attorney General Richard Blumenthal concerning the company's reinsurance business which the Hartford exited in 2003.
The Hartford and several other insurers were accused of colluding with several major insurance brokers in the placement of the contracts in return for lucrative volume-based contingent commissions.
The company said in a statement that the attorneys general of New York, Connecticut and Illinois found that certain employees engaged in these activities during this period. The Hartford added that this was not in keeping with the company's standards.
The Hartford came under investigation with other insurers in an inquiry that was begun in 2004 by then New York Attorney General Eliot Spitzer, into broker sales of commercial insurance.
The probe, a variety of civil actions and criminal pleas by various broker and insurance company executives led to the abandonment of all contingent commissions by Marsh, Aon, Willis and Arthur J. Gallagher.
Hilb, Rogal & Hobbs also settled similar allegations with Attorney General Blumenthal, but instead of banning all contingent commissions the broker only stopped taking the volume-based commissions which were connected to kickback schemes.
In a statement, New York Attorney General Andrew M. Cuomo said the insurer often cooperated with brokers' bid-rigging by providing them with losing quotes, helping to fool small and midsized businesses "into believing they were getting the best insurance at the best price when in fact they were not."
For his part, Mr. Blumenthal said the insurer intentionally worked to steer contracts and the practice extended itself not only to Marsh brokerage but to HRH and Acordia. Acordia is now a part of Wells Fargo Financial Services. Earlier this year the firm was sued by New York over steering allegations. Wells Fargo has denied all wrongdoing and has vowed to defend itself vigorously.
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