NEW YORK — American International Group Inc. Chairman and Chief Executive M.R. "Hank" Greenberg defending his company's brokerage-payment practices, saying AIG had sought guidance from New York insurance regulators about the issue.
New York State Attorney General Eliot Spitzer on Thursday accused AIG and three other insurance companies of participating in price-fixing schemes with brokers, firms hired by corporations to buy commercial insurance policies at the best possible price. Spitzer filed a civil lawsuit against the largest broker, Marsh & McLennan Cos., which is run by Greenberg's oldest son, Jeffrey.
Spitzer said Marsh's brokerage unit misled corporate customers by conducting sham negotiations with insurers. AIG and others sometimes submitted artificially high bids so Marsh could give the illusion it was conducting tough negotiations when it actually steered business to favored insurers, the suit said. Insurers, in return, paid brokers "contingent commissions," which some policyholders who previously sued over the practice have called kickbacks.
Spitzer's suit said AIG and units of Hartford Financial Services, Bermuda-based Ace Ltd. and Munich American Risk Partners' Munich Re participated in the bidding scheme.
Two executives at an AIG unit pleaded guilty to a first-degree felony count of a "scheme to defraud" by providing fake quotes to Marsh, Spitzer said. AIG said Thursday it was "saddened" by the guilty pleas and holds itself to "the highest ethical standards."
During a conference call Friday, AIG's Greenberg said it had been "open" with the New York Department of Insurance about contingent-commission payments. However, Greenberg said they never received guidance from regulators about the payments, although they had "brought it to their attention." About 15% of its commercial property and casualty business is generated through Marsh & McLennan, Greenberg said.
Greenberg said AIG had launched an internal investigation in September when it was subpoenaed by Spitzer. Internal investigators "interrogated" several employees, but short of the problems that led to the guilty pleas, the company didn't identify any wrongdoing, Greenberg said. Those employees were put on leave, and no other employees have been disciplined yet, he said.
No high-level AIG executive was aware of the wrongdoing, Greenberg said,
Still, AIG executives continue to investigate. "As CEO, I take responsibility for everything that goes on at this company," the CEO said.
Greenberg thinks the insurance industry as a whole will change the way commissions are paid, but he doesn't think it will have any effect on the overall price of insurance coverage. Still, "It think there will be more transparency" for the companies buying insurance from brokers about the fee structure, Greenberg said.
The family of AIG CEO Greenberg, 79, has much at stake in the investigation. In addition to Jeffrey Greenberg's position as chairman and CEO of Marsh, another son, Evan Greenberg, is president and CEO of Ace.
Spitzer lashed out at Marsh, and indirectly at Jeffrey Greenberg, saying that the firm could face criminal charges because his office was "misled at the very highest levels of that company." He added that he would not negotiate with Marsh's "current leaders."
He also said that other insurance brokers and insurers could face criminal and civil charges in his continuing investigation.
The second- and third-largest brokers are Aon Corp., based in Chicago, and Willis Group Holdings Ltd., New York. Both have accepted contingent commissions and received subpoenas from Spitzer's office.
Aon founder Patrick Ryan said last month that he would step down as CEO, although the company he has run for 40 years didn't name a successor. Willis was taken public in 2001 by buyout firm Kohlberg Kravis Roberts & Co., which still owns about 25% of the company.
Marsh and the four insurers named in the lawsuit said they are cooperating with Spitzer's office.
