State Attorney General Richard Blumenthal has sued reinsurance broker Guy Carpenter & Company L.L.C., claiming the company pocketed more than $80 million in illicit profits by arranging inflated insurance prices as much as 40 percent above the industry average.
Guy Carpenter & Co. sells reinsurance that helps other insurance carriers spread the risk of the policies they issue to clients. Guy Carpenter & Co. and parent company Marsh & McClennan Cos. are based in New York City.
Blumenthal claims Guy Carpenter & Co. conspired with other reinsurance firms to fix prices and shut out competitors, manipulate markets and increase profits. Carriers named in the suit include The Hartford Steam Boiler Inspection and Insurance Co.; and Swiss Reinsurance America Corp. of Armonk, N.Y.
“The Connecticut attorney general”™s complaint is based on a fundamental misunderstanding of reinsurance facilities that have been in operation for the benefit of small- and mid-sized clients for as long as 50 years,” Guy Carpenter & Co. stated in a written response. “As many of our clients have confirmed during this investigation, these facilities result in improved availability and terms of reinsurance and ultimately benefit insurance buyers. Simply put, there is no basis for the attorney general’s lawsuit and we intend to defend ourselves.”
Blumenthal claims Guy Carpenter & Co. funneled lucrative business to select inner circles of reinsurance companies in exchange for excessive fees and other benefits.
Those carriers agreed not to compete against the prices and terms set by Guy Carpenter & Co. If the carrier was unwilling to “play ball,” Blumenthal alleges, the firm was blocked from potential reinsurance business that it was otherwise willing to write.
“We began an aggressive investigation after insurers in Connecticut and nationwide sought to impose unconscionable and unacceptable burdens on consumers, particularly along coastal areas,” Blumenthal said, in a written statement. “Our investigation has revealed a system of cascading costs resulting from illegal price-fixing arrangements in the reinsurance industry that created a complete vacuum of competition ”¦ Reinsurance is essentially a completely unregulated business where backroom deals abound.”
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