(Bloomberg) ? ACE Ltd. will stop paying brokers for steering insurance business its way, becoming the third company to abandon a practice that New York Attorney General Eliot Spitzer said amounted to "lucrative payoffs."

ACE, a Bermuda-based insurer, yesterday said it would no longer pay the incentive fees to brokers. American International Group Inc., the world's largest insurer, on October 15 said it may make a similar decision.

That same day, Marsh & McLennan Cos., the insurance broker that's at the centre of Spitzer's probe, said it would no longer accept the fees.

Spitzer sued New York-based Marsh on October 14, alleging the company took payoffs to steer clients to American International and competitors such as ACE. The lawsuit prompted the biggest one- day drop in insurance stocks in more than four years.

Shares of Marsh have since plunged 45 percent.

"Eliot Spitzer is somebody with a long list of successful actions behind him and nobody wants to tangle with him," said James Angel, an associate professor of finance at Georgetown University in Washington.

He's wrested about $4.4 billion in probes of fraud in the securities and mutual-fund industries.

Spitzer hasn't sued ACE, though the Marsh complaint cites the company, along with American International, Hartford Financial Services Group Inc. and Munich Re, as participants in bid-rigging arrangements that fuelled their business and boosted Marsh's profit.

Earlier yesterday, the Wall Street Journal reported that Spitzer is examining whether Aon Corp., the world's second-biggest insurance broker, also improperly accepted payments from insurance clients.

The article cited unidentified people familiar with the matter.

Chicago-based Aon said October 15 that "to the best of our knowledge, our employees haven't" been involved in bid rigging. Spokesman Gary Sullivan declined to comment further.

Marsh shares fell $3.63, or 12 percent, to $25.57 in New York Stock Exchange composite trading.

Aon fell 47 cents to $21.27. ACE shares rose 40 cents to $35.38, while American International climbed $1.83 to $59.68. Hartford dropped $1.95 to $54.35. Munich Re slipped 1.9 percent to 73.40 euros in Frankfurt. Last week Patricia Abrams, a vice president at ACE, pleaded guilty to a criminal charge in connection with the case, joining two American International executives who also pleaded guilty and agreed to testify in future cases. Brokers such as Marsh, Aon and Willis Group Holdings Ltd. are typically paid commissions that are a percentage of the premiums charged to their clients ? the companies, schools or other institutions that need insurance. At issue in the Spitzer probe are additional commissions that brokers take from insurers ? fees that are based on the volume and profitability of the business that they steer to those insurers.

The payments are known as contingency fees, placement service agreements or market service agreements.

Spitzer's suit "raised the question of the continuing appropriateness of placement service agreements (PSAs)," ACE chief executive officer Evan Greenberg, the son of American International Chairman Maurice "Hank" Greenberg, said in an employee letter posted on the company's Web site yesterday.

"Therefore, effective immediately, we will discontinue all PSAs throughout our organisation."

By declining to accept so-called contingency fees, Marsh will forgo payments that would have contributed $485 million, or more than a quarter, of its profit next year, estimated Fox-Pitt Kelton Inc. analyst Jon Balkind.

Marsh postponed a conference call scheduled for yesterday and said it would release an 8-K filing with the Securities and Exchange Commission outlining the financial effects of the payments.

The company didn't say when it would make the filing and said the conference call would be rescheduled for "late this week or next week".

The absence of these agreements may hurt growth and profitability at American International and other insurers, said Morgan Stanley analyst Vinay Saqi.

American International's Greenberg last week said eliminating the payments wouldn't significantly affect his company's finances.

Spitzer's suit alleged Marsh was so intent on getting the fees that the company, along with the four insurers, fabricated insurance quotes in order to give the appearance of competition for a client's business.

ACE said it hired New York law firm Debevoise & Plimpton to conduct an internal inquiry when Spitzer began his investigation several months ago.

Former US Attorney Mary Jo White is leading the firm's inquiry.

"Where the investigation shows that there have been lapses, they will be fixed ? quickly and permanently," Evan Greenberg's letter to employees said.

Hartford Financial spokesman Josh King declined to comment on the company's plans for contingency fees, as did Willis spokesman Dan Prince and Terese Rosenthal, a spokeswoman for American Re, a unit of Munich Re.