AON SETTLES CORRUPTION PROBE

Department of Law
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New York, NY 10271
Department of Law
The State Capitol
Albany, NY 12224

For More Information:
(212) 416-8060 For Immediate Release
March 04, 2005

AON SETTLES CORRUPTION PROBE

Leading Insurance Broker Agrees to Pay $190 Million and Adopt Sweeping Reforms

Attorney General Eliot Spitzer and Acting New York State Insurance Superintendent Howard Mills, together with Connecticut Attorney General Richard Blumenthal, Illinois Attorney General Lisa Madigan and Illinois Acting Director of Insurance Deirdre Manna, today announced an agreement with the nation’s second largest insurance brokerage to resolve allegations of fraud and anti-competitive practices.

Under the agreement, the Chicago-based Aon Corporation is providing $190 million over a 30- month period for restitution to policyholders and is adopting a new business model designed to avoid conflicts of interest. In addition, Aon’s Chairman and CEO, Patrick G. Ryan, has issued a public statement apologizing for Aon’s improper conduct.

"The underlying complaint in this case shows that improper conduct was pervasive at Aon," Attorney General Spitzer said. "To its credit, however, the company has acknowledged the problems, has agreed to compensate policyholders and has adopted reforms that will provide greater accountability in the future."

Superintendent Mills said: "Aon will under the terms of this settlement bring greater transparency to the insurance marketplace by providing significant disclosure to clients and instituting substantive corporate governance reforms. The big winners here are consumers who understandably need assurances that they are receiving appropriate insurance products at the best price."

Attorney General Blumenthal said: "This hidden "pay to play’ scheme severely hit both public and private purses, including ordinary consumers, towns and cities, taxpayers and major educational institutions. Aon demanded kickbacks from insurers in exchange for business, even as it was paid by customers. The scheme inflated prices and stifled competition. Today’s action compels Aon to cease this illegal, unethical practice immediately and pay restitution."

Attorney General Madigan said: "Our investigation revealed that Aon Corporation accepted secret payments from insurers for steering them business. Aon’s acceptance of these secret payments was a direct conflict of interest that harmed Aon’s clients. Aon’s acceptance of kickbacks was not only unethical, but illegal. This settlement will guard against future conflicts of interest and help to return integrity to this industry."

The civil complaint filed today in State Supreme Court in Manhattan and the citation issued by the New York Insurance Department allege that for years Aon received special payments from insurance companies that were above and beyond normal sales commissions. These payments -- known as "contingent commissions" -- were characterized as compensation for "services to underwriters" but were, in fact, rewards for the business that Aon steered and allocated to the insurance companies. Industry representatives defend this long-standing practice as acceptable and even beneficial to clients, but Spitzer’s office and the Insurance Department have uncovered extensive evidence showing that the practice distorts and corrupts the insurance marketplace and cheats insurance customers.

In addition to promising to send business to its insurance company partners in exchange for cash payments, Aon also promised to place business with insurers in exchange for the insurers’ agreement use Aon’s reinsurance brokerage services.

Spitzer’s complaint against the company cites internal communications in which top executives openly discussed these efforts to maximize Aon’s revenue and insurance companies’ revenues – without regard to Aon’s clients’ interests.

In addition, the complaint cites the involvement of Mr. Ryan in efforts to increase placements with an insurance company in exchange for that company’s use of an Aon subsidiary (Aon Re) for reinsurance brokering.

The complaint also alleges that Michael O’Halleran, Ryan’s second-in command, personally negotiated "clawback" arrangements in which Aon Re would provide insurers with discounts or rebates on its reinsurance commissions on the condition that Aon could recover or "claw back" these discounts through retail placements made with the same insurers.

Among the reforms adopted by Aon is a new policy in which the company will accept one payment only for an insurance contract at the time of placement, and that its payments will be fully disclosed to and approved by Aon’s customers.

The agreement with Aon was modeled after an earlier agreement reached January 31 with the nation’s largest insurance broker, Marsh & McLennan Companies.

Spitzer’s office and the New York State Department of Insurance continue a broad investigation of the insurance industry. To date, ten executives from four companies have pleaded guilty to criminal charges stemming from the probe.

The investigation underlying today's civil action and settlement was conducted by David D. Brown IV, Chief of the Investment Protection Bureau, with Assistant Attorneys General Maria Filipakis, Michael Berlin, Matthew Gaul, David Axinn, Mel Goldberg, John Carroll, Peter Bernstein, David Weinstein, Anita Barrett and Gaurav Vasisht.

Audrey Samers, Deputy Superintendent and General Counsel of the New York State Department of Insurance, and Jon Rothblatt, Principal Attorney, led the department’s investigation.

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