The latest focal point of New York Attorney General Eliot Spitzer’s scrutiny is the commercial insurance industry. His investigation, starting with a lawsuit against Marsh and McLennan, the largest insurance broker in the world, has grown to include more than a dozen companies. At an October 14, 2004 press conference, Spitzer explained, “If the practices identified in our suit are as widespread as they appear to be, then the industry’s fundamental business model needs major corrective action and reform.” To date, Spitzer has subpoenaed Aetna, AIG, CIGNA, Hartford Financial Services Group Inc., ING, Liberty Mutual, MetLife, and UnumProvident, among others. The charges against these companies center around bid-rigging and kickbacks.

While the Marsh and McLennan suit deals specifically with transactions in the property and casualty insurance market, AIG, Hartford and others are health insurers, and Liberty Mutual handles disability insurance.

How exactly are these companies supposedly defrauding customers? Well, an insurance broker like Marsh and McLennan would be contracted by a client to find an insurance company fitting the client’s needs and offering the most competitive bid. However, Spitzer alleges that the broker only appeared to be receiving competing bids while in actuality had predetermined the insurance company to be used. These decisions were based on payments referred to as “contingent commissions” which Spitzer claims were nothing more than old fashioned kickbacks. Marsh may have collected more than $800 million in these contingent commissions over the years.

Now Spitzer is calling for the industry to regulate its own practices before the government imposes new rules on them. But this wake-up call to the insurance community seems to be inspiring sweeping change. A Senate commission conducting its own investigation held a mid-November hearing in which it called on state attorneys general from California and Connecticut, as well as Spitzer to testify. Insurance consumers, alerted to the pricing and commission structures, are paying closer attention to their own agents’ practices. Since there is no federal regulation of the industry, at least twelve states are now looking into local insurance practices, while others are continuing their ongoing consumer protection efforts. Find a link to your state's Department of Insurance.