Mass. launches insurance probes

Massachusetts Attorney General Thomas F. Reilly and the state Division of Insurance have each opened separate investigations of insurance companies and brokers to determine if any engaged in price fixing or other illegal sales practices that cheated customers out of the best prices for policies.

''We are actively gathering information," said Alice Moore, chief of Reilly's public protection bureau, ''to determine the scope of harm to Massachusetts consumers. We are using the tools available to us, and are looking at potential violations" of the state's consumer protection and false claims laws.

Meanwhile, the Division of Insurance yesterday sent letters yesterday to 21 Massachusetts-based subsidiaries of 10 insurance companies requesting information on so-called contingent commissions or payments they make to brokers for giving them client's business, in order to determine whether the payments helped sway brokers' purchasing decisions.

''We want to nail down whether there's been any price fixing going on, and we have to have a full understanding of the application and use of contingency payments in their group accounts," said Chris Goetcheus, a spokesman for Insurance Commissioner Julianne M. Bowler.

The Massachusetts probes follow the allegations last week from New York Attorney General Eliot Spitzer that the world's largest broker, Marsh & McLennan Cos., rigged bids and fixed prices to steer clients' business to those insurers that paid it the highest commissions. Spitzer said commission payments created an incentive for Marsh to rig prices, stifling competition and robbing consumers of the lowest prices for coverage.

Moore declined to comment further on the targets of her office's investigation or on the scope and details of what she expects to gather. But among the tools generally available to the Massachusetts attorney general in such investigations are subpoena-like powers to collect documents and take testimony from company officials.

The two state laws Reilly's office is using as the springboard for its investigation are civil, not criminal statutes, that give him the authority to levy fines if it finds wrongdoing.

Meanwhile, the insurance division is launching ''market conduct examinations" or financial exams that essentially give investigators access to all company records and papers, Goetcheus said.

The agency will focus on those companies that sell property and casualty, life, and health insurance through brokers to group accounts, such as corporate employee benefit plans, which are more likely to have these types of broker payment arraignments.

Goetcheus added that the division had ''no reason to believe" the insurers under examination had done anything wrong, but ''we need to do the due diligence to verify that."

Executives from Liberty Mutual Group, whose three insurance subsidiaries will be examined, met with state insurance commissioner Bowler and aides yesterday and ''provided information on our sales compensation practices," said company spokesman John Cusolito. He added Liberty Mutual will cooperate with the state's examination.

Like many other major insurers around the nation, Liberty Mutual also has been subpoenaed by Spitzer's office, but the company said in a statement this week that its own inquiry has found ''no evidence of bid rigging or other illegal practices."

Executives at Tufts Health Plan, Harvard Pilgrim Health Care, and Blue Cross and Blue Shield of Massachusetts -- the state's largest health plans -- said they were notified by state officials that they would be subject to the examinations.

Catherine Grant, a Tufts spokeswoman, would not comment on the company's relationship with brokers, but said the Massachusetts investigation is ''expected, given the inquires taking place in other states. We will fully cooperate."

Blue Cross spokesman Chris Murphy said the health insurer welcomes ''the opportunity to share this information."

Officials at other companies that will examined by the insurance agency, including Massachusetts Mutual Insurance Co., Manulife Financial Corp.'s John Hancock unit, and the OneBeacon Insurance Group, either declined comment or didn't return calls seeking comment.

In a further expansion of the nationwide investigation, one of the country's largest insurance companies, American International Group Inc., said yesterday it has been notified by the federal prosecutor in Indiana that it is a target of a federal grand jury investigation into ''nontraditional" insurance products. The Indiana probe into AIG concerns agreements with businesses that would be accounted for as insurance but did not involve any actual risk transfer, AIG said.

Also, major insurance brokerage, Willis Group Holdings Inc., said that it would stop accepting the disputed contingency commissions.

Andrew Caffrey can be reached at caffrey@globe.com. Liz Kowalczyk contributed to this report. Material from the Associated Press was included in this report.