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Aon Settles Insurance Corruption Case

March 4, 2005
Aon, the nation’s second largest insurance broker, will pay $190 million to policyholders to settle a corruption case brought by the attorneys general of New York, Connecticut and Illinois.

Insurance Probe • • Connecticut Files Antitrust Suit Against Reinsurance Broker • The Hartford Settles Illegal Trading Charges • Zurich American Implements Reforms, Pays Consumers Millions • Liberty Mutual Sued in Bid-Rigging Investigation • Insurance Executives Indicted for Bid Rigging, Fraud • Aon Settles For $190 Million • Marsh & McLennan to Pay $850 Million • Universal Life Settles with California • Florida Subpoenas Insurers • Zurich American Insurance Executives Plead Guilty • NY Insurance Broker Charged With Fraud, Antitrust Violations • Fremont Investment Advisors Settle Market Timing Case • Florida Opens Insurance Probe • Oregon Joins Insurance Probe • California Joins Insurance Crackdown • Widespread Insurance Corruption, NY Charges

Under the agreement, the Chicago-based Aon Corporation is providing $190 million over a 30-month period for restitution to policyholders and is adopting a new business model designed to avoid conflicts of interest. In addition, Aon’s Chairman and CEO, Patrick G. Ryan, has issued a public statement apologizing for Aon’s improper conduct.

Attorney General Eliot Spitzer, Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan announced the settlement.

"The underlying complaint in this case shows that improper conduct was pervasive at Aon," Spitzer said. "To its credit, however, the company has acknowledged the problems, has agreed to compensate policyholders and has adopted reforms that will provide greater accountability in the future."

The civil complaint filed in State Supreme Court in Manhattan and the citation issued by the New York Insurance Department allege that for years Aon received special payments from insurance companies that were above and beyond normal sales commissions. These payments -- known as "contingent commissions" -- were characterized as compensation for "services to underwriters" but were, in fact, rewards for the business that Aon steered and allocated to the insurance companies.

Industry representatives defend this long-standing practice as acceptable and even beneficial to clients, but Spitzer’s office and the Insurance Department have uncovered extensive evidence showing that the practice distorts and corrupts the insurance marketplace and cheats insurance customers.

In addition to promising to send business to its insurance company partners in exchange for cash payments, Aon also promised to place business with insurers in exchange for the insurers’ agreement use Aon’s reinsurance brokerage services.

Spitzer’s complaint against the company cites internal communications in which top executives openly discussed these efforts to maximize Aon’s revenue and insurance companies’ revenues – without regard to Aon’s clients’ interests.

In addition, the complaint cites the involvement of Mr. Ryan in efforts to increase placements with an insurance company in exchange for that company’s use of an Aon subsidiary (Aon Re) for reinsurance brokering.

"This hidden "pay to play’ scheme severely hit both public and private purses, including ordinary consumers, towns and cities, taxpayers and major educational institutions. Aon demanded kickbacks from insurers in exchange for business, even as it was paid by customers," Attorney General Blumenthal said. "The scheme inflated prices and stifled competition. Today’s action compels Aon to cease this illegal, unethical practice immediately and pay restitution."

The complaint also alleges that Michael O’Halleran, Ryan’s second-in command, personally negotiated "clawback" arrangements in which Aon Re would provide insurers with discounts or rebates on its reinsurance commissions on the condition that Aon could recover or "claw back" these discounts through retail placements made with the same insurers.

Among the reforms adopted by Aon is a new policy in which the company will accept one payment only for an insurance contract at the time of placement, and that its payments will be fully disclosed to and approved by Aon’s customers.

The agreement with Aon was modeled after an earlier agreement reached January 31 with the nation’s largest insurance broker, Marsh & McLennan Companies.

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