2004-10-21
This is Bob Doughty with the VOA Special English Economics
Report.
In a fair market, businesses compete to provide products and
services to buyers. Competition is supposed to keep down prices.
Now, the top law enforcement official in New York State is
investigating competition in the insurance industry.
Attorney General Eliot Spitzer brought civil action last week
against the biggest insurance broker in the world. Marsh and
McLennan Companies is accused of cheating buyers. These are mostly
businesses, but also local governments and some individuals.
Insurance is a guarantee against risk. Insurance companies pay
for losses when something bad happens. There are many kinds of
policies, such as automobile insurance, fire insurance and health
insurance.
Brokers bring together buyers and sellers. The job of an
insurance broker is to collect competing offers, called bids, from
insurance companies. Buyers then choose the best one.
Mister Spitzer says Marsh directed buyers to companies from which
it received special payments. These are known as "contingent
commissions." Also, he says Marsh at times requested false bids from
insurance companies, to create the appearance of real competition.
Several large insurance companies are named, but not charged, in
the action. These include Ace and A.I.G., the American International
Group. A.I.G. is the world's largest insurance company. Two
officials from A.I.G. and one from Ace said they are guilty of
criminal charges in connection with the case. Other companies are
still under investigation.
A.I.G. and Ace both say they will no longer pay contingent
commissions to brokers. And Marsh says it will no longer accept such
payments.
Marsh announced the immediate suspension of "market service
agreements" with insurance companies. It says these agreements
provided eight hundred forty-five million dollars last year. That
was twelve percent of all the money from its risk and insurance
services. Marsh and McLennan says it takes the accusations of
wrongdoing very seriously.
The New York investigation has led California Insurance
Commissioner John Garamendi to warn of legal action in his state
against the industry.
Eliot Spitzer is already known for reaching big settlements in
civil cases against financial companies accused of cheating
investors.
This VOA Special English Economics Report was written by Mario
Ritter. This is Bob Doughty.