Aon, the #2 insurance brokerage, may be Eliot Spitzer's next target in his investigation of contingent commission payments from insurers to insurance brokers, according to the New York Times.
An article in the Sunday Times, "Spitzer Goes Hunting for His Next Trophy," by Timothy L. O'Brien and Joseph B. Treaster, focuses on the career of Patrick Ryan, Aon's CEO, who built the present day global insurance brokerage through acquisitions and creative business practices. The article provides a readable introduction to the practices and regulation of insurance relevant to the investigation and the role of Marsh & McLennan and Aon, which together handle 70% of the corporate insurance market in the United States, according to the Times.
The CEO of Marsh resigned a few days ago in response to charges by Attorney General Spitzer. According to the Times, Mr. Spitzer has further evidence that may involve practices by Aon, but has not filed legal action, as he has with respect to Marsh. The New York Times > Business > Your Money > Spitzer Goes Hunting for His Next Trophy
Jeffrey W. Greenberg, CEO and Chairman of Marsh & McLennan, the world's largest insurance broker, resigned Monday, according to the New York Times, to avoid an indictment of the corporation. Criminal prosecutions of individuals are still expected from New York Attorney General Eliot Spitzer. He and other state authorities are probing "contingency fees," and "placement service agreements" that have been controversial but commonplace between insurance brokers and insurance companies. Allegations of bid-rigging in commercial insurance have also surfaced, involving the state antitrust laws. Insurance Chief Quits in Inquiry Led by Spitzer (New York Times, October 26, 2004)
Health info technology needs breakthroughs in provider adoption, common standards and technology and patient ownership of their records. The result of an improved care network will be improved health, according to Dr. David Brailer, first national health information technology coordinator in the Department of Health and Human Services (HHS). E-records vital to health strategy (Federal Computer Week, Oct. 24, 2004).
Dr. Brailer's objectives include:
A 174-page June 21, 2004 HHS report: "Decade of Health Information Technology" provides a framework for strategic action.
AIG (American International Group) says it is the target of a U.S. grand jury probe into "nontraditional" insurance products, according to A.P., the Seattle Times and the New York Times.
In September of 2003, AIG paid $10 million to settle (without admitting) S.E.C. charges that it had aided Brightpoint (Nasdaq CELL), a cell-phone distributor based in Indiana, in falsifying earnings by issuing an "income smoothing" contract.
Sources: Insurer AIG says it's target of federal grand-jury probe (Seattle Times, Oct. 22, 2004). See also: A.I.G. Says It Is Target of Midwest Inquiry (New York Times, Oct. 22, 2004).
California's insurance commissioner has proposed new regulations to require agents and brokers to disclose any financial incentive they would receive for selling certain insurance products and steering business to specific companies. A press release by Commissioner Garamendi reports he ordered the regs drafted in March, after criticism of incentive commissions surfaced.
The practice came to national attention recently due to legal action taken by New York Attorney General Eliot Spitzer, focused on Marsh & McLennan and several leading insurers, alleging conflicts of interest and bid-rigging in violation of state antitrust laws.
The Florida Hurricane Catastrophe Fund is expected to pay about $3 billion towards the estimated $21.9 billion in combined damage from the four 2004 hurricanes, according to the state's CFO Tom Gallagher. Insurers expected to tap Florida catastrophe fund for $3 billion (A.P. Wire Oct. 18, 2004). The state's cat fund works as catastrophe reinsurance for the state's windstorm insurers, with each storm having a separate $4.5 billion deductible to be absorbed by the covered companies. The first of the two hurricanes (Frances and Ivan) may not qualify because their estimated damage is below the deductible, but Charley and Jeanne are expected to breach the threshold.
The state-subsidized fund is designed to encourage insurers to offer windstorm coverage in Florida. In 1992, Hurricane Andrew's $16 billion in losses drove several companies into insolvency and also wiped out the cash reserves of the state's guaranty fund, which stands behind insolvent insurers. Gallagher is quoted as seeking legislative changes to the deductible levels in a special legislative session. In April, 2004, Gallagher was quoted by the Insurance Journal: "Expanding the Cat Fund will promote needed competition in the marketplace by encouraging insurance companies to write more coverage for homeowners."
In a September, 2004 commentary by Gallagher comparing Charley v. Andrew, he compared the "too low" premium rates of 1992 to rates he today regards as adequate to provide sufficient reserves for insurers to weather catastrophic storms. He contrasted his view to that in consumer letters, published this fall, arguing that windstorm insurance rates should be reduced "because it has been 12 years since Hurricane Andrew: A week later Charley hit."
New York AG Spitzer's press release on lawsuit against Marsh & McLennan Companies, naming several insurers and alleging fraud and antitrust violations for price-fixing, includes a link to the Complaint (PDF), setting forth the allegations.
Wharton has published a study by Prof. David R. Bell and PhD candidate Sangyoung Song, which found a significant "neighborhood effect" in consumer selection of an online retailer. Instead of a physical neighborhood, the effect was related to the connectiveness of the early adopters of the retailer's services, finding "a 50% increase in the base rate of consumers trying an online retailer's services once they talked about or otherwise observed its use locally".
They studied data provided by Netgrocer from its May 1997 launch to January 2001, "a complete and exhaustive list of all 382,478 transactions that had taken place nationwide.".
"Other studies in economics and sociology have argued for and demonstrated the existence of neighborhood effects in a number of diverse contexts; however, they have not been shown to operate on the Internet," Bell's paper notes. "Some researchers have even speculated that the Internet may contribute to individuals becoming more diffuse and solitary in their behavior. Conversely, our empirical findings are consistent with the proposition that social interaction stimulates trial of a new Internet service."
"Social Contagion and Trial on the Internet: Evidence from Online Grocery Retailing," is available free online at Knowledge@Wharton.
First Monday has published a scholarly article analyzing several popular "P2P" systems used for music and video distribution from a perspective of self-organizing networks. Bryn Loban's recent article, "Between rhizomes and trees: P2P information systems" includes discussion of the robust nature of distributed networks that lack a centralized topology, and the vulnerability of such a network to targeted attacks on hubs or "supernodes" exhibiting high connectivity.
He includes legal attacks in this vulnerability analysis, saying:
"Another feature of decentralised P2P FS networks is that they are more resistant to legal attacks. It is difficult for these networks to be closed due to legal action, as is evident from the fact that, at the time of writing, both Gnutella and Kazaa are still in operation, unlike Napster. * * * This may be true but, yet again, if legal attacks were to be targeted at certain Kazaa super–nodes, for instance those which upload the greatest quantity of files, the network would be severely damaged."
First Monday is a free, online publisher of scholarly, peer-reviewed articles. "Between rhizomes and trees: P2P information systems" by Bryn Loban is found in First Monday, volume 9, number 10 (October 2004), URL: http://firstmonday.org/issues/issue9_10/loban/index.html