WASHINGTON – On the day he announced an $850 million settlement with the world’s largest insurance company, the attorney general of New York, Eliot Spitzer, yesterday said the insurance industry is “rife” with corruption and called on President Bush to break up “illegal cartels” in order to reduce insurance premiums.

A Democrat who is running for governor of New York, Mr. Spitzer also attacked the president’s plan to create private Social Security accounts, calling it “fiscal unreality” that would require “astronomical” government debt. He made the remarks in a wide-ranging speech to the National Press Club yesterday, in which he portrayed himself as a successor to the trust-busting Theodore Roosevelt.

Marsh & McLennan Companies Inc. said it will pay the millions to end Mr. Spitzer’s investigation into bid-rigging and price-fixing and to avoid litigation. The amount was the largest corporate settlement outside of the tobacco industry, Mr. Spitzer said. He pledged to continue to investigate corruption in the insurance industry, and called on Mr. Bush to do the same.

“I have not heard a single word from the White House saying, maybe premiums are higher because the insurance companies formed an illegal cartel,” Mr. Spitzer said, describing the evidence of corruption as “overwhelming.”

“The insurance industry has corruption that is rife throughout it, rife. It touches every line of insurance that is purchased, every line. And we will keep going until we find it,” he said.

The company also agreed to change its business practices and issued a statement condemning its own conduct.

“We are ashamed at what a few, of amongst the tens of thousands of Marsh employees, have done to our clients, their fellow employees, the shareholders, and our company,” Marsh’s president and chief executive officer, Michael Cherkasky, said.

The payout will include $94 million to New York clients, as well as to companies in California, Pennsylvania, and Texas. The money will not take the form of a fine or a penalty, Mr. Spitzer said, so it will not flow to state coffers as required by law, but would be reimbursed directly to affected customers. None of the money would go to lawyers or the government, he said.

Insurance is only the latest industry to feel the impact of Mr. Spitzer’s aggressive investigations. He earned a national reputation pursuing conflicts of interest at major investment banks and improper trading at mutual funds.

He defended the aggressive tactics yesterday, explaining that they are aimed at keeping the market free and transparent.

“The market will not survive if we do not understand its flaws,” he said, adding that “government needs to enforce the rule of integrity.” Self-policing by corporations has been a failure, he said.

However, U.S. Chamber of Commerce President Tom Donohue told the Associated Press that Mr. Spitzer’s technique was “the most egregious and unacceptable form of intimidation that we have seen in this country in modern time.”

Mr. Spitzer called on Democrats not to cede the rhetoric of the “ownership society” to Republicans who, he said, “cloak themselves in the language of the free market” while opposing reforms that keep the market transparent to investors.

“It is the Democratic Party historically that created the middle class, that protected middle-class investments, and made it possible to invest with integrity and transparency,” he said.

Mr. Spitzer compared his efforts to those of Alexander Hamilton and President Roosevelt.

“I would suggest to you that today we are in the midst of the same debate that occurred 100 years ago,” he said, between a business leadership “that cloaks itself in the language of the free market, that really want to preserve an ossified system, and want to act against those who really want to support competition, transparency, and ethics,” and those who believe that government “must step in every now and again to define the boundary lines and ensure there is integrity, transparency, and fair play.”

Roosevelt’s intervention, he said, served to open the market to competition and created enormous economic growth in later years.

Mr. Spitzer said he did not know whether corporate leaders would prevail in their attempts to change or repeal the Sarbanes-Oxley Act. He said the legislation is “not perfect” but is “critically important.”

“Right now, the push-back is really being motivated by the desire of many business leaders not to need to comply with the fundamental rules of transparency and integrity,” he said.

He said the Bush administration lacks the credibility to propose personal savings accounts because it opposed his efforts to reform Wall Street and eliminate the conflicts of interest that led stock analysts to overestimate the values of stocks in order to generate underwriting business for their investment houses.

“While on the one hand, they are saying the system does not need to be fixed, there was nothing wrong with it, they fought against the changes we wanted. And then they say, take your savings and put it into that very system. Where would we be if those who are retiring had their money in Enron and WorldCom?” he asked.

The proposed private Social Security accounts would be “a mistake not only because this administration has not demonstrated that it is dedicated to the core integrity of the marketplace, but perhaps more importantly, because of the debt that would have to be incurred is simply astronomical. There is a fiscal unreality to this administration’s game plan, as there has been from day one,” he said.

Responding to Mr. Spitzer’s comments, White House spokesman Ken Lisaius said “the problem here is that Social Security needs to be fixed.”

“The current system will not be able to afford to pay promised benefits to our children and grandchildren without enormous payroll tax increases,” Mr. Lisaius said, noting that benefits would not change for seniors.

“This president wants to see the program strengthened without raising payroll taxes,” he said. The younger generation “shouldn’t have to depend on a system that was designed in 1935.”