2 insurers drop disputed fees

NEW YORK -- Two major insurance companies named in the New York attorney general's investigation into questionable sales practices have discontinued the use of incentive fees, which are at the center of the probe.

ACE Ltd., a Bermuda-based insurer, said on its website late Sunday that it was halting the use of "placement service agreements," also known as contingent commission or market service agreements.

Joe Norton, a spokesman for New York-based American International Group Inc., yesterday confirmed that the company, too, had stopped using incentive fees.

AIG officials last week had said they were studying the issue.

The fees, which are over and above ordinary commissions, have been paid by insurance companies to brokers, mainly for steering profitable clients the insurer's way.

The big brokerage at the center of the probe, Marsh & McLennan Cos. Inc., on Friday said it was suspending its practice of using incentive fees.

Last Thursday, New York State Attorney General Eliot Spitzer filed a civil suit accusing the New York brokerage of bid rigging as well as of failing to properly disclose the incentive fees.

Spitzer charged that because of these sales practices, corporate customers were not getting the best prices on property and casualty policies.

ACE also said "we have been cooperating with the New York attorney general's office since its investigation began several months ago. We will continue to cooperate fully."

It also said it has hired a legal firm to conduct an independent investigation at ACE.

Both AIG and Marsh & McLennan have said they have hired outside experts to look into their operations.

Yesterday, shares in Marsh & McLennan continued to slide.

They fell $3.63, or 12 percent, to close at $25.57 on the New York Stock Exchange.

In trading Thursday and Friday after Spitzer's disclosure, Marsh & McLennan's shares were down 37 percent.

Shares in ACE closed up 40 cents yesterday at $35.38, while shares in AIG closed up $1.83 at $59.68.