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COLUMBUS, Ohio--Zurich American Insurance Co. has agreed to pay $7 million to end allegations of noncompetitive business practices and improper use of finite insurance products leveled by Ohio insurance regulators.
Under the terms of the settlement agreement announced Wednesday, the insurer--a unit of Zurich, Switzerland-based Zurich Financial Services Group Inc.--will pay the office of Ohio Attorney General Jim Petro $6 million, including $4 million in civil penalties and $2 million for reimbursement of attorneys' fees and investigative costs.
In addition, Zurich agreed to pay the Ohio Department of Insurance a civil penalty of $1 million, and to implement various business reforms, including: a ban on providing false quotes and entering into so-called "pay-to-play" arrangements under which insurers compensate brokers for being included on a list of companies from which the brokers solicit bids or quotes; enhanced disclosure to consumers regarding the compensation Zurich pays to insurance producers, including brokers; and appointing a compliance officer to oversee a compliance program to ensure Zurich adheres to the terms of the settlement agreement.
Zurich admitted no wrongdoing as part of the settlement.
The settlement comes in response to allegations that Zurich, along with other insurers, conspired with New York-based broker Marsh & McLennan Cos. Inc. to "eliminate competition, mislead customers and inflate premiums paid for commercial casualty insurance policies in Ohio," Mr. Petro and Ohio Department of Insurance Director Ann Womer Benjamin said in a joint statement.
The regulators alleged that insurers who took part in the scheme submitted fictitious and artificially inflated premium quotes to deceive clients into believing that the winning quote was the best available premium as determined by a competitive process.
The lines of insurance affected by the alleged conspiracy were purchased primarily by business and governmental entities, and include umbrella, excess casualty, directors and officers, errors and omissions, and commercial auto insurance, the regulators said.
Such agreements among competitors to divide markets or customers represent a violation of Ohio's antitrust law, The Valentine Act, while the use of misleading, unfair or deceptive practices by brokers or insurers to manipulate insurance markets violates state insurance laws enforced by the state insurance department, the regulators said.
"Today's settlement should send a clear message that we will vigorously enforce our laws to protect honest competition among insurers and brokers in Ohio," Mr. Petro said in the statement. "I'm gratified that Zurich has stepped forward to resolve this matter."
"Ohio will not tolerate unscrupulous and illegal business practices by insurance companies trying to gain a foothold in our market and unfairly boost their income at the policyholders' expense," Ms. Womer Benjamin noted in the statement.
"We are pleased that today's announced settlement with Ohio substantially resolves all investigations of Zurich covering allegations related to certain prior broker compensation and insurance placement practices," a Zurich spokesman said in an e-mailed statement. "We will continue to cooperate with all regulatory investigations."
"Today's agreement also resolves the Ohio attorney general's investigation into 'nontraditional' products and finite insurance/reinsurance," the statement noted.
Nearly 79,000 Ohio business and government policyholders will be eligible for restitution as part of Zurich's settlement with Ohio regulators, and under prior settlements and a pending class action lawsuit in U.S. District Court in New Jersey, the regulators said.
In March, Zurich entered into a $153 million, three-state pact to resolve similar allegations brought by officials in Connecticut, Illinois and New York. That same month, Zurich paid $171.7 million to settle similar charges with attorneys general from 10 states, along with Florida's insurance commissioner. (BI, April 3).
Mr. Petro and Ms. Womer Benjamin noted in their statement that the state's investigation into improper broker compensation practices is "continuing," though they would not identify other targets.
Zurich has agreed to cooperate with the ongoing probe.