ALBANY, N.Y. -- Thousands of companies and governments that bought insurance through a broker expecting the lowest rates will share in the proceeds from a $153 million settlement of a bid-rigging scheme involving Zurich American Insurance Co.
The victims, which include small retailers, school districts, governments, and large corporations, will receive $88 million, said New York Attorney General Eliot Spitzer, who led the investigation.
Zurich American, a subsidiary of Switzerland's Zurich Financial Services, also agreed to pay penalties and costs of the investigation to the three states in the settlement: $39 million to New York, and $13 million each to Connecticut and Illinois.
Zurich, which admitted no wrongdoing, will also make changes. Among them will be an end to ''contingent commissions" in excess casualty insurance, the line of business that Spitzer said involved bid-rigging. Zurich will also stop paying contingent commissions on other products if 65 percent of the industry drops the fees that Spitzer said can cause conflicts of interest that hurt consumers. Zurich will also disclose more about its transactions.
''We have in place standards that promote the best interests of our customers, agents, brokers, and Zurich," said chief executive James Schiro.
The settlement is part of Spitzer's investigation of Marsh & McLennan Cos., the nation's largest property and casualty brokerage. Marsh settled with Spitzer last year for $850 million over allegations of bid-rigging, price-fixing, and hidden commissions.
Zurich was one of the companies Spitzer accused of participating in a bid-rigging scheme that used phony bids to fool customers into choosing a pre-determined company. The scheme eventually provided all participants with steered contracts and prices not determined by a free market.
''Zurich's willingness to acknowledge problems, adopt reforms, and provide appropriate compensation to customers will help the company move forward to help promote full and fair competition in the insurance industry," Spitzer said.
Spitzer said Zurich was among a few companies that would submit bogus high bids to help steer some contract to one company and could expect to have the same done for them.
Spitzer cited an e-mail from a Marsh broker to a Zurich underwriter seeking a phony bid for an insurance contract Spitzer said was being steered to American International Group Inc. The e-mail included: ''Can you give me a protective indication on this. It is an AIG renewal and AIG already quoted it so just give me a bad price with higher per occ. attachment and then we can be done with this." Spitzer said Zurich provided the phony quote in the deception of a Marsh customer.
''Our investigation revealed that Zurich schemed with insurance brokers and other insurers to rig bids, behavior that led policyholders to pay more for insurance," said Illinois Attorney General Lisa Madigan. ''Zurich also secretly paid contingent commissions to brokers in exchange for the brokers steering business to Zurich."
Earlier this month, Zurich agreed to pay nearly $172 million in a separate deal with nine states, including Massachusetts, to settle allegations of bid-rigging and price-fixing in the commercial insurance market.