Settlement reached with St. Paul Travelers Insurance Company
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Investigation uncovered unlawful
Illinois to receive $8 million
[AUG. 2, 2006]
CHICAGO -- Illinois Attorney General Lisa Madigan,
New York Attorney General Eliot Spitzer and Connecticut Attorney
General Richard Blumenthal announced on Tuesday that a $77 million
settlement agreement has been reached with one of the nation's
largest property casualty insurers over charges of bid-rigging,
steering of insurance business and accounting misconduct.
The agreement requires St.
Paul Travelers, a major provider of automobile and homeowners insurance for individuals and commercial insurance for businesses of
all sizes, to pay back $37 million to policyholders affected by St.
Paul Travelers' role in a scheme to rig bids on excess casualty
insurance policies. Under this scheme, the company did not disclose
to its policyholders that it was colluding with other insurers and
brokers to rig bids for excess casualty insurance. The amount that
Illinois policyholders will receive has not yet been determined.
Under the agreement, St. Paul Travelers also will pay $40 million in
penalties and payments to the three states, including $8 million to
Additionally, the agreement requires St. Paul Travelers to reform
critical business practices. Under the agreement, St. Paul Travelers
will sharply curtail its use of "contingent commissions," paying no
contingent commissions on excess casualty insurance placements
through 2008. Contingent commissions are payments that insurers pay
to brokers and agents in addition to the base commissions.
Contingent commission amounts generally are based on the volume and
profitability of the business a broker or agent produces for an
insurance company. Madigan's investigation found that, because
contingent commissions are based on volume and profitability, they
encourage brokers and agents to improperly steer clients to
particular insurers, even if that is not in the clients' best
St. Paul Travelers has agreed to stop paying such commissions in
any line of insurance in which companies with 65 percent of gross
written premiums do not do so. The company has agreed to support
legislation banning contingent commissions and requiring greater
disclosure of compensation to brokers and agents. Under the
agreement, St. Paul Travelers also agreed to provide new online
disclosures later this year about ranges of compensation paid to
brokers and agents for insurance products.
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"Our investigation revealed that St. Paul Travelers was another
insurance carrier that secretly agreed with insurance brokers and
other insurers to rig bids for insurance policies," Madigan said.
"Because of this illegal conduct, policyholders did not get the
impartial recommendations they deserved, and they ended up paying
more for insurance. St. Paul Travelers also paid contingent
commissions to brokers in exchange for the brokers steering business
to St. Paul Travelers, again without the policyholders' knowledge or
consent. This settlement, along with other recent similar
settlements, will help restore integrity to the insurance markets,
both for businesses and individual consumers."
The settlement is a product of a wider, ongoing probe of
misconduct in the insurance industry. Among the recent settlements
are a $153 million settlement with Chicago-based insurer Zurich in
March 2006 and an $80 million settlement with ACE in April 2006.
Those settlements, which also included the New York and Connecticut
attorneys general, similarly dealt with bid-rigging, contingent
commissions and improper steering.
Benjamin Weinberg, chief of the Public Interest Division, and
Brent Stratton, deputy chief, are handling the case for Madigan's
[News release from the