updated 3/4/2005 11:25:15 AM ET 2005-03-04T16:25:15

Aon Corp., the world’s No. 2 insurance brokerage, has agreed to pay $190 million and adopt reforms to end a bid-rigging investigation by three states.

Under the settlement announced Friday, Chicago-based Aon will provide the money over a three-year period for restitution to policyholders. The pact ends probes by the states of New York, Illinois and Connecticut.

“The underlying complaint in this case shows that improper conduct was pervasive at Aon,” New York Attorney General Eliot Spitzer said. “To its credit, however, the company has acknowledged the problems, has agreed to compensate policyholders and has adopted reforms that will provide greater accountability in the future.”

Aon chief executive Patrick Ryan issued an apology as part of the settlement. He acknowledged Aon “and other insurance brokers and consultants” used contingent agreements with insurance companies that created conflicts of interest.

Critics say such agreements between insurers and brokers can drive up prices for insurance policyholders.

“I deeply regret we took advantage of those conflicts,” Ryan said. “Such conduct was improper and I apologize for it.”

Aon said in a statement it will be contacting domestic customers who are entitled to payments from the settlement. The company admits no guilt or liability. It restated that its own review found no evidence of price fixing, bid rigging or the solicitation of phony quotes.

“We are enhancing policies, practices and controls; setting new, higher standards for service excellence; and re-energizing our commitment to safeguarding the trust that clients put in our 48,000 people every day,” Ryan said.

“While we do not agree with a number of allegations in the complaints, the settlement permits us to look to the future,” he said.

In Illinois, Attorney General Lisa Madigan filed a civil lawsuit simultaneous with the announcement of a settlement. The suit charged Aon with consumer fraud and deceptive business violations by accepting the secret payments. She said the suit will be formally settled and dismissed in court next week.

“Aon’s acceptance of kickbacks was not only unethical but illegal,” Madigan said. “This settlement will guard against future conflicts of interest and help to return integrity to this industry.”

In January, top executives of Aon said the company expected to pay more than $50 million set aside to settle investigations by New York, Illinois and Connecticut attorneys general. But the company denied any bid-rigging or fraud.

The civil complaint filed by Spitzer’s office Friday in State Supreme Court in Manhattan alleges Aon received contingent commissions, or special payments from insurance companies above normal sales commissions, that were rewards for steering business to the companies.

Industry officials have defended the long-standing practice as acceptable and even beneficial to clients, while the attorney general and state Insurance Department said it distorts the marketplace and cheats customers.

Spitzer and other state regulators have been investigating the insurance industry over the use of incentives brokers collected from insurance companies to steer clients to their policies. Spitzer said that was anticompetitive and potentially cost clients in premiums or service. He has also said the incentives were part of bid-rigging and price fixing between brokers and insurance companies at the expense of clients.

In January, Aon’s bigger rival, Marsh & McLennan Cos. based in New York, agreed to pay $850 million in restitution to end Spitzer’s investigation into bid-rigging, price-fixing and the use of hidden incentive fees. Marsh publicly apologized for “shameful” and “unlawful” conduct.

Ryan has said that Marsh took in four times the amount of revenue Aon did in contingent commissions — the broker-incentive fees that have been discredited by Spitzer and other states’ officials.

Aon’s fourth-quarter profits declined by 12 percent to $189 million, largely because of its decision to end contingency commissions. The company said it collected $15 million in contingent commissions in the quarter, down from $52 million in the same period of 2003.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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