AIG Pays $12.5M to Settle with States Over Bid-Rigging Allegations

January 29, 2008

American International Group, Inc. (AIG) confirmed today that it has reached settlements with nine states and the District of Columbia relating to their investigations into alleged bid-rigging and price-fixing and questions about undisclosed contingent commissions paid to brokers.

Under the settlement agreements, AIG denies the states’ allegations that some of its subsidiaries were involved in a “pay-to-play” tactic used by Marsh & McLennan and other insurance brokers that purportedly caused businesses to pay higher insurance premiums.

AIG has not admitted any liability related to these charges. AIG said it agreed to settle to “avoid the expense and uncertainty of protracted litigation.”

The settlements, which are subject to court approvals, were reached with the attorneys general of Florida, Hawaii, Maryland, Michigan, Oregon, Texas and West Virginia, the Commonwealths of Massachusetts and Pennsylvania, and the District of Columbia; the Florida Department of Financial Services; and the Florida Office of Insurance Regulation.

The settlements call for total payments of $12.5 million to be allocated among the 10 jurisdictions.

During the term of the settlement agreements, AIG said it will continue to maintain certain producer compensation disclosure and ongoing compliance initiatives. AIG will also continue to cooperate with the industry-wide investigations.

The agreement with the Texas attorney general also settles allegations of anticompetitive conduct relating to AIG’s relationship with Allied World Assurance Co., and includes an additional settlement payment of $500,000 related to that issue.

According to the complaint, AIG and several of its insurance subsidiaries allegedly conspired with Marsh and other brokers by submitting fake bids to create the illusion of a competitive bidding process in the excess casualty commercial insurance market. Investigators said they determined that despite the appearance of a fair bidding process, the broker had already decided which insurer would receive a particular policyholder’s business. As part of the scheme, AIG paid the brokers “contingent commissions” which were not disclosed to policyholders and in return received other lucrative business, according to officials.

Texas Attorney General Greg Abbott said his state will receive more than $3.7 million under the settlement.

“Unlawful bid-rigging schemes undermine the integrity of our free market system,” said Abbott. “We will continue working to protect competition and foster economic growth in Texas.”

Florida will receive approximately $3 million that officials said will be used to fund a reimbursement pool for affected policyholders. The settlement funds will also repay the state agencies’ investigative costs.

Massachusetts will receive $1.3 million of the settlement monies.
“Today’s settlement helps ensure that brokers truly represent their clients’ interests by requiring greater transparency and disclosure of the types and ranges of compensation paid to insurance brokers on AIG’s policies,” said Mass. Attorney General Martha Coakley.

Pennsylvania Attorney General Tom Corbett said this state will receive $2.6 million.

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