The investigator, who requested anonymity, told Reuters that the focus of the Spitzer probe now includes life and health insurance firms as well as consulting firms that advise companies on insurance and benefits plans. Spitzer’s office is looking into fees paid by insurers to consultants, known as “overrides,” for their efforts in advising companies in setting up insurance plans and placing insurance policies. Earlier this week Marsh said Mercer stopped accepting overrides on October 1.

In May, reports revealed that insurers often paid fees to consultants who advised companies on where to buy policies for employees. Spitzer argued that these payments, whether to brokers or consultants, represent a clear conflict of interest and have likely led to inflated costs for clients. Other benefits consultants that have accepted payments from insurers include Hewitt Associates and closely-held Towers Perrin. These firms have said their fees were fully disclosed to clients.

Last week Spitzer, who also sparked a continuing and wide-ranging probe into abusive mutual fund trading and sales practices, sued Marsh & McLennan Cos., accusing the world’s largest insurance broker of steering business in exchange for secret fees. Spitzer said then that the probe would eventually extend to every part of the insurance industry. The Reuters source said “dozens” of Spitzer subpoenas have been issued since the beginning of this year to insurance brokers and property-casualty insurers.

The added investigative focus is significant for the Boston-based Marsh, the parent of broker Marsh Inc., which also owns Mercer, a corporate consulting business.”We are looking at Marsh & McLennan very broadly in its connection to the insurance industry,” the official told Reuters. “We understand Mercer does a fair amount of insurance consulting and employee-benefits consulting and we’re looking at those areas as well.”

Marsh finds itself at the center of a probe challenging the practice of brokers accepting fees – known as contingent commissions or placement service agreement (PSA) fees – from insurers  (See    Spitzer Takes On Contingent Commissions ). Spitzer said Marsh steered business to insurers on the basis of these fees rather than which insurer offered the best price.

Marsh collected $845 million of PSA fees last year, more than half of the company’s total profit. By comparison, overrides were less than 1% of health care and group benefits revenue for the company.

Other State Investigations

In addition to Spitzer’s activities in New York, the iinsurance industry probe has now spread to California, Connecticut, Pennsylvania, New Jersey, Virginia, Massachusetts, Minnesota, Florida, Illinois and Maryland where state authorities have launched their own inquiries.

Massachusetts Insurance Commissioner Julianne Bowler, meanwhile, recently met with Liberty Mutual Group officials, a spokesman for the commission said. The Boston-based insurer said Wednesday it had been subpoenaed as part of the Spitzer probe. The insurance commission has also opened an examination of of property, casualty, life and health insurers in the state who offer employer group benefits through brokers.