Insurance carrier American International Group Inc. today settled a bid-rigging investigation with Texas Attorney General Greg Abbott.

Under the settlement, the company must end its involvement in a bid-rigging scheme engineered by broker Marsh McLennan and pay $12.5 million to nine states and the District of Columbia. Texas will receive more than $3.7 million under the settlement. The settlement requires AIG to reform its business practices, including disclosing to its customers the precise amount of compensation it pays to insurance brokers.

An investigation by the attorney general found that AIG participated in deceptive insurance bid-rigging, price-fixing and other schemes in the commercial insurance market. McLennan devised the scheme to mislead large and small companies, nonprofit organizations and public entities into believing they were receiving the most competitive commercial premiums available, according to a statement by the attorney general's office.

Prior to the settlement AIG paid restitution to a nationwide group of policyholders including those in Texas.

The attorney general's investigation focused on AIG's failure to disclose "contingent commissions" it paid to insurance brokers. According to the attorney general, McLennan devised a scheme that gave commercial policyholders the appearance of a legitimate competitive policy bidding process when in fact Marsh secretly pre-designated certain insurers to win bids, and the results for policyholders were actually inflated rates, not competitive bids. The anti-competitive scheme succeeded because insurers such as AIG earned preferred status with Marsh by paying the "contingent commissions" to insurance brokers, which it failed to disclose to its policyholders, according to the attorney general.

The attorney general's enforcement action also alleges that AIG entered into an illegal agreement not to compete against Allied World Assurance Co., another surplus lines property and casualty insurer, resulting in an unreasonable restraint of trade. While the other states did not elect to bring those charges against AIG, the company paid Texas $500,000.

Other states participating in the settlement against AIG are Florida, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Pennsylvania, West Virginia and Washington D.C.

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