As Marsh & McLennan
New York State Attorney General Eliot Spitzer has allegedly found proof that the world's second-largest insurance broker was steering business to insurers that paid incentives to the company, a possible violation of the state's fraud and antitrust laws, as well as evidence of the practice of "tying," whereby the broker threatens to stop recommending an insurer's policies unless it agrees to use the broker to place its own reinsurance policies. The alleged sins of Marsh & McLennan are overt criminal acts; the practices of Aon are more nebulous. The impact on the industry is far-reaching.
Spitzer forced Marsh to press the ouster of its CEO by refusing to negotiate with the company and threatening to indict it criminally, an action the company would have been hard-pressed to survive. With little choice, Marsh CEO Jeffrey Greenberg resigned and was replaced by Michael Cherkasky, the former CEO of Kroll Inc., a company Marsh acquired only this year. Coincidentally -- or not -- Cherkasky was once Spitzer's boss in the district attorney's office. The show of force used by Spitzer to change not only business practices but also corporate leadership has many concerned that the tactics are overreaching, that there is a lack of due process where Spitzer serves as judge, jury, and executioner.
Executives from American International Group
The investigation is widening throughout the industry, as insurers seemingly report daily they have received subpoenas for documents on how business is conducted between brokers and insurers. St. Paul Travelers
Some consumer advocates view Spitzer's crusade as beneficial, possibly leading to lower insurance premiums. Even if no widespread collusion or price fixing is uncovered, companies might reduce premiums simply to avoid the taint of being associated with scandal. Marsh, Aon, and Willis Group Holdings
The investigation into insurance industry practices has grown beyond the New York attorney general. Other states, including Minnesota, Connecticut, and California, have also launched investigations, while federal authorities and the SEC push their own probes. It is a morass that may cause Aon investors to be off with their money to safer investments.
Fool contributor Rich Duprey remains concerned about corporate policy being determined by political ambition. His comments are his own and do not reflect those of the Motley Fool. He does not own any of the stocks mentioned in this article.