New York Attorney General Eliot Spitzer yesterday took aim at the insurance industry - including having Bermuda-based giant ACE in his sights.

A stinging lawsuit against brokerage Marsh & McLennan Companies and Marsh Co. - the largest global provider of insurance broking and consulting services - alleges that ACE and other insurers had conspired with Marsh to unreasonably “restrain trade and commerce” through rigging the bidding process and making incentive payments to the broker for sending business its way.

Mr. Spitzer, in a live Press conference carried on the CNBC network, said his investigation had unearthed “craven disregard for ethics and the law at some of the nation's largest corporations”, with brokers and the insurers they place business for fattening their own pockets without regard to the best interest of the clients they represent.

Mr. Spitzer charged in the suit that “a cast of the world's largest insurance companies have participated in Marsh's steering scheme” by paying “hundreds of millions of dollars for Marsh to steer business their way”.

He said his team “had not got much sleep in the last couple of days” but their hard work had resulted in the series of charges against Marsh - and the heat is not off with Mr. Spitzer saying other insurers were also under investigation.

Specifically, Marsh faces six actions from the attorney general including charges of fraudulent business practice, breaking antitrust law, and securities fraud after the company was found to be profiting handsomely from insurance companies paying for Marsh to steer business their way.

ACE, AIG, and Hartford were named as making payoffs to Marsh for business and working with the broking giant to rig the bidding process to the benefit of Marsh and the insurers - not the clients being represented.

Mr. Spitzer said the legal action was being taken after a wide-ranging nine-month investigation of the sector, implicating “virtually every line (of business),” particularly casualty insurance.

He added that the “charges go to the heart of Marsh's and the industry's business model”.

The suit contends that the facts show that Marsh - contrary to public statements that it is a representative for clients not the insurers they place business with - has “designed and executed a business plan under which insurance companies have agreed to pay Marsh more than a billion dollars in so-called contingent commissions to steer business” to them.

The suit continued: “Styled as ‘nebulous' services, the agreements to pay these commissions were called placement service agreements (PSAs) and most recently, market service agreements (MSAs).

During the Press briefing, Mr. Spitzer showed blown-up versions of an internal e-mail from a Marsh executive telling subordinates that “some PSAs were better than others” and the size of the contingent commission payment would determine “who (we) are steering business to and who we are steering business from”.

A second e-mail shown by the Attorney General was said to refer to ACE's desire to get more business from Marsh, but said the Marsh executive contended that ACE would have to enter into a contingent commission agreement to pay Marsh “above market”.

Mr. Spitzer charged that Marsh gleaned a large proportion of its net profit last year from the commissions it was paid by insurers - $800 million of the $1.5 million in net income came from its carriers, he said.

That is much higher than estimates reporting, on average, that insurer/broker compensation agreements account for about 20 percent of a broker's profits

The suit also alleges that Marsh and insurers had an agreed system that effectively rigged bids for higher insurance premiums, effectively leading to more business for the insurers in exchange for incentive payments to Marsh.

The world's largest commercial insurer American International Group (AIG) was named in the suit, with it being alleged that from 2001 there had been “systematic bid manipulation” between a division of Marsh and division of AIG.

The suit also charged that “ACE signed a contingent commission agreement in order to gain access to the business Marsh controlled”, and that it had followed directions from Marsh to file “inflated quotes into 2004”.

Both AIG and ACE were reportedly told by Marsh whether to submit what they called an A, B, or C quote with target premiums and policy terms for the quotes.

The suit said that the president of ACE's Casualty Risk department said Marsh's price targets had been “designed to ensure underwriters ‘do not do anything stupid' as respects pricing”. The heads of AIG, Marsh, and ACE are father and sons, Maurice (Hank) Greenberg, Jeffrey Greenberg and Evan Greenberg. Earlier in the year, Bermuda-based AXIS Capital was subpoenaed by Mr. Spitzer for information on incentive payments made to insurance brokers. At the time, AXIS president and CEO John Charman said he was “more than happy to fully cooperate with this inquiry”.

AXIS was not named in the action taken by Mr. Spitzer yesterday.

Mr. Spitzer's probe of the insurance industry comes after his having turned the heat on the investment industry last year.

His investigation of how brokers are compensated followed a February letter from legal and public policy think tank, Washington Legal Foundation, urging regulators in New York and California to investigate broker commission agreements.

A parallel investigation into whether insurance buyers are aware of exactly how their broker is compensated has been launched by Connecticut attorney general Richard Blumenthal.