Insurance broker inquiry widens
HARTFORD, Conn. — New York Attorney General Eliot Spitzer has broadened his probe into insurance brokerage fees to include life and health insurance company practices.
The attorney general has served health insurers Cigna Corp., which is headquartered in Philadelphia, and Hartford-based Aetna Inc. with subpoenas demanding more information about the company’s compensation of insurance brokers, it was disclosed Tuesday.
Investors responded by hammering the companies’ stock, sending Aetna and Cigna shares down 12 percent and 10 percent, respectively.
At issue is whether the brokers are improperly steering business to those who pay the highest fees — paid on top of commissions — rather than seeking the best deals for their customers.
MetLife Inc., headquartered in New York, and disability insurer UnumProvident Corp. of Chattanooga, Tenn., also said Tuesday they had received additional subpoenas from Spitzer’s office.
Cigna spokesman Wendell Potter said the subpoenas seek “communications with and payments to brokers.” Potter said the company was cooperating with Spitzer’s office.
There was no immediate comment from Aetna.
Spitzer launched an investigation in April focusing on the practice by property casualty insurance companies of paying incentive fees to brokers who serve large corporate and government clients. He said after filing a civil suit on Thursday against Marsh & McLennan Companies Inc., the nation’s largest insurance brokerage, that his investigation would expand. Spitzer’s suit accuses Marsh & McLennan of bid rigging and of using incentive fees to dupe corporate customers into paying more than necessary for property and casualty insurance coverage. The suit named a number of property and casualty insurers, including American International Group Inc., ACE Ltd. and The Hartford Financial Services Group Inc.
Two AIG employees and one ACE employee pleaded guilty last week to related criminal charges.
Meanwhile, The Wall Street Journal reported that California’s insurance commissioner, John Garamendi, planned to file suits within the next two weeks looking at companies that sell personal insurance, including employee benefits as well as life, auto and homeowner policies.
He declined to identify which insurance companies he was planning to take action against. Calls to his office on Tuesday were not returned.
Insurance company shares took a beating again Tuesday on Wall Street.
Cigna tumbled $6.85 to close at $59.73; Aetna fell $11.57 to $86.17; MetLife was off 52 cents at $33.98; and UnumProvident fell $1.33 to $12.19, all on the New York Stock Exchange.