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WARREN, N.J.Chubb Corp. has agreed to pay $15 million in policyholder restitution and to alter its practicesincluding replacing contingent commissions on all U.S. lines of business with a "supplemental compensation program" to resolve investigations by attorneys general in New York, Illinois and Connecticut.
Chubb, which noted in a statement that it was not assessed with any fines or penalties, also will pay $2 million to the officials for the costs of the investigations, which were led by New York Attorney General Eliot Spitzer.
Mr. Spitzer's office said in a statement that the settlement resolves an investigation of "customer steering, improper finite reinsurance transactions, and other unlawful industry practices." His investigation found that "Chubb made undisclosed payments to insurance brokers and agents that encouraged them to steer business to Chubb," including loans Chubb made to brokers and agents for which the interest and the principal "would be forgiven if the broker or agent delivered an agreed-upon increase in business to Chubb. This created a conflict of interest for brokers and agents who owed their clients fiduciary duties of care, full disclosure and loyalty."
IIn its statement, Warren, N.J.-based Chubb says that the investigationsas well as an independent inquiry commissioned by the company "did not conclude that Chubb participated in a pattern or practice of illegal bid-rigging" in the excess casualty insurance market.
"Chubb acknowledged that it appears to have unknowingly benefited from the bid-rigging activities of others in the excess casualty market, which may have provided Chubb with an advantage in retaining certain renewal business," the insurer said in its statement.
Under the agreement, the insurer will pay $15 million to Chubb excess casualty policyholders that purchased policies through Marsh & McLennan Cos. Inc., which Mr. Spitzer charged with bid rigging and steering in a 2004 lawsuit. Several other insurers, including ACE Ltd., American International Group Inc. and St. Paul Travelers Cos. Inc., have agreed to compensate policyholders and end the use of contingent commissions on some lines in connection with Mr. Spitzer's investigation of the compensation practices of Marsh and other major brokerages.
Chubb's settlement calls for it to cease paying contingent commissions on all insurance lines in the United States beginning in 2007, replacing them with "a supplemental compensation program that will reward Chubb's agents and brokers for superior performance in a manner consistent with evolving marketplace standards and reforms urged by the Attorneys General," the insurer said in a statement.
A spokesman for Chubb declined to provide details on the compensation program.
"We are pleased that Chubb has resolved these investigations on a basis which recognizes that our company did not knowingly participate in bid- rigging," said John D. Finnegan, Chairman and CEO of Chubb. "The Attorneys General are to be commended for raising important questions regarding a number of insurance industry practices," John D. Finnegan, Chairman and CEO of Chubb, said in the insurer's statement.
"Chubb has voluntarily undertaken substantial business reforms over the past two years, culminating with today's announcement of a new producer compensation model that recognizes the important services provided by independent agents and brokers," he said.