Insurance incentive fees halted

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.

Joe Norton, a spokesman for New York-based American International Group Inc., said Monday that the company had stopped using incentive fees. AIG officials last week had said they were studying the issue.

ACE Ltd., a Bermuda-based insurer, said in an announcement on its Web site late Sunday that it was halting the use of “placement service agreements,” also known as contingent commissions or market service agreements.

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 Companies Inc., on Friday said it was suspending its practice of using incentive fees.

Investors pulled back from Marsh & McLennan shares on Monday for a third consecutive trading day. They fell $3.63, or more than 12 percent, to $25.57 in trading Monday on the New York Stock Exchange. In trading Thursday and Friday, after the investigation was announced, Marsh & McLennan’s shares fell 37 percent.

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

Last Thursday, New York State Attorney General Eliot Spitzer filed a civil suit accusing Marsh & McLennan, which is based in New York, 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.

Besides ACE and AIG, Spitzer’s probe also mentioned Hartford Financial Services Group Inc. and Munich-American Risk Partners, a division of the German-headquartered Munich Re Group. None of the insurers has been charged.

David Wood, a partner in the Los Angeles law firm of Wood & Bender LLP, which specializes in helping companies enforce their insurance policies, said he wasn’t impressed with the insurance company announcements that they were halting contingent commissions.

“If I get caught going 100 miles an hour in a school zone, don’t you think I’m going to tell the officer, I won’t go 100 miles an hour in a school zone again?” Wood said. “That’s what I’m hearing.”

He added: “What I’d be more interested in hearing is how they (the insurance companies) plan to rebuild trust and confidence with their clients.”

He said that after the regulatory action, he expects to start seeing private lawsuits as companies seek redress for overcharging on their property and casualty insurance policies.

In making its announcement on Monday, 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 that 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.