Zurich American to Settle With States

Zurich American Insurance Co. has agreed to pay nearly $172 million in a deal with nine states to settle allegations of bid rigging and price fixing in the commercial insurance market, state officials said Sunday.

Policyholders in all 50 states would receive $151.7 million in refunds, said Mark Tobey, a lawyer with the Texas attorney general’s office.

Zurich American will pay an additional $20 million to the nine states, including investigative costs, attorney fees and payments, in lieu of civil penalties, said Tobey, who helped negotiate the deal.

The settlement is the latest in a broad investigation by state authorities into the practice of “contingent commissions” that insurers paid brokers. Regulators say the commissions were part of a scheme between the companies and brokers to inflate premiums and overcharge commercial policyholders.

The states in the Zurich settlement are: California, Florida, Hawaii, Maryland, Massachusetts, Oregon, Pennsylvania, Texas and West Virginia.

Keith Owens, a spokesman for Zurich American, on Sunday confirmed a settlement “to resolve inquiries related to insurance business practices.” He said he had no further details.

Marsh & McLennan Cos., the nation’s largest insurance broker, agreed in January 2005 to pay $850 million in restitution to settle a New York state investigation into bid rigging, price fixing and the use of hidden incentive fees. Marsh publicly apologized for “shameful” and “unlawful” conduct.

A spokesman for Marsh & McLennan declined to comment Sunday.

Eight people have been indicted on criminal charges of bid rigging from November 1998 to September 2004. Previously, 17 executives at five companies pleaded guilty to criminal charges related to the investigation.

Texas Atty. Gen. Greg Abbott said Zurich participated in such a scheme with Marsh.

“Businesses shopping for commercial insurance were deceived into believing they were getting the best deals available,” Abbott said in a statement. “The whole anti-competitive scheme was an intentional smokescreen by several insurance players to artificially inflate premiums and pay improper commissions to those who brokered the deals.”

Said Massachusetts Atty. Gen. Tom Reilly: “Insurance companies will not get away with deceiving their customers, inflating prices or manipulating the insurance marketplace.”

The final terms of the settlement are subject to court approval.

Also on Sunday, St. Paul Travelers Cos., the second-biggest U.S. commercial insurer, said it wasn’t in discussions to buy Zurich American’s parent, Zurich Financial Services Group.

Reports that the company would merge with Zurich Financial, the biggest Swiss insurer, aren’t true, St. Paul, Minn.-based St. Paul Travelers said in a statement.

The Wall Street Journal said Friday that St. Paul might buy Zurich, which would create a company with more than $90 billion in annual revenue, closing in on New York-based American International Group Inc. and Munich, Germany-based Allianz. Zurich spokesman Daniel Hofmann declined to comment that day. The shares rose 5% in Zurich on Friday.

St. Paul was prompted to release a statement because of the “definitive manner” of the merger reports, despite its policy of avoiding commenting on speculation, the company said Sunday. St. Paul spokesman Shane Boyd didn’t immediately return telephone messages to his office and mobile phone.