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Travelers Insurance Settles Bid-Rigging Charges

Insurer agrees to pay $6 million and reform its practices

December 29, 2007

The judgment, which must be approved by the court before it can become effective, also mandates comprehensive injunctive relief, including disclosure of the types and ranges of compensation Travelers pays to insurance brokers.

“Today’s settlement helps ensure that brokers truly represent their clients’ interests by requiring greater transparency and disclosure of the types and ranges of compensation paid to insurance brokers on Travelers’ policies,” said Massachusetts Attorney General Martha Coakley.

According to the complaint Travelers allegedly participated in an intricate bid rigging scheme in which broker Marsh & McLennan pre-designated which insurance company’s bid would “win” a particular account. To create the appearance of a competitive bidding process, Marsh would instruct certain insurers to submit inflated, intentionally uncompetitive bids.

These schemes gave commercial policyholders, which included large and small companies, nonprofit organizations, and public entities, the impression that they were receiving the most competitive commercial premiums available, when they were actually being overcharged.

Additionally, Travelers was involved with a “pay-to-play” arrangement centered on their payment of contingent commissions, in addition to standard commissions and fees, to insurance brokers.

Contingent commissions, also known as profit sharing commissions, are controversial incentive-based compensation programs offered to brokers by insurance companies. These arrangements were often undisclosed to consumers, and provided an incentive for brokers to steer business to the insurer who offered the most lucrative contingent commissions, often in violation of their clients’ interests.

Joining in the settlement are: Florida, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Texas, West Virginia, Pennsylvania and the District of Columbia. The Florida Department of Financial Services and the Florida Office of Insurance Regulation also joined the states in the settlement.

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