Pa., insurance company settle bid-rigging allegations

John O'Brien May 14, 2007, 1:00pm


HARRISBURG, Pa. - Pennsylvania Attorney General Tom Corbett has reached a settlement with ACE, Limited, an insurance company he says engaged in bid-rigging practices.

ACE will pay $9 million to the Pennsylvania Department of Insurance, having already agreed to repay $40 million to policyholders in a previous agreement.

"ACE participated in a scheme with various insurance brokers to falsify quotes in order to easily steer business to preferred insurers in exchange for the same thing in return," Corbett said. "This shrewd business tactic created a false appearance of market competition and cheated consumers out of millions of dollars."

Bid-rigging suits became popular with former New York Attorney General Eliot Spitzer, who engineered a $850 million settlement with Marsh & McLennan in 2005. Zurich American also paid millions in a settlement, with $92 million going to 16 attorneys general for attorneys fees. The settlements in which Zurich entered called for $210 million in restitution.

Corbett said ACE also paid contingent commissions -- payments that insurers pay to brokers and agents in addition to their base commissions in exchange for the brokers agreeing to steer policies for excess casualty to ACE and increased premiums on existing policies. Several companies ended this practice when they settled with attorneys general.

"The bid-rigging that ACE engaged upon in this scheme essentially raised premium prices for insurance customers and steered business directly to themselves, which stifled competition without the policyholders knowledge," Corbett said.

ACE will also, in the future: Fully disclose to present or prospective policyholders compensation information; establish a toll-free telephone number that policyholders can request disclosure of compensation information; and not provide or offer any broker or non-exclusive agent a false, fictitious, inflated, artificial, alternative, back-up or throw-away bid, quote or indication, or any other illegal quote.

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