New MMC Boss Promises Firm Will Be Healthy

By Mark E. Ruquet

NU Online News Service, Oct. 26, 3:44 p.m. EDT?Marsh & McLennan Companies' new chief executive said the firm does not know how much its reforms in the wake of a price-fixing case will cost the company and the scandal has produced at least one firing.[@@]

Michael G. Cherkasky, who took over yesterday as president and CEO at MMC, also said it is too early to know how much the changes, which include Marsh Inc. brokerage discontinuing all forms of contingency fee compensation, will cost the New York-based company.

He said despite the impact the revisions would have on earnings, MMC will continue to be "a healthy company," and as a leader in the insurance industry, its changes will have a profound impact on competitors.

MMC has said that contingency fees accounted for 12 percent of Marsh's revenue, amounting to $845 million. The corporation had reported revenue last year of $11.6 billion.

Mr. Cherkasky said that the malfeasance in the company uncovered by New York Attorney General Eliot Spitzer is limited to a very limited portion of its business and is not as widespread as it has been characterized.

Mr. Spitzer alleges in a lawsuit against MMC, which seeks punitive damages, that the brokerage arranged with major insurers to rig bids at inflated prices and pay kickbacks to Marsh disguised as fees in exchange for having unwitting customers steered their way.

The misdeeds alleged by Mr. Spitzer have resulted in suspensions and one firing, he said.

Mr. Cherkasky would not reveal the names of the employees suspended or the one fired, and referred further inquires to an MMC spokeswoman.

A call to her was not returned.

Press reports have identified four of the employees as William Gilman, a managing director in Global Broking, Edward McNenny, Gregory Doherty and Samantha Gilman.

Roger Egan, Marsh Inc. president and chief operating officer, said he did not believe clients would end up paying more for their insurance because of the compensation changes. He said the firm is working at making compensation arrangement changes globally, and it should complete the task by Jan. 1, 2005.

Among some of the reforms, besides eliminating contingent arrangements:

? Clients will receive a full accounting of all revenue earned by Marsh, including fees, retail commission, wholesale commission and premium finance compensation, if any.

? Commission rates are to be shown on all policies, with the cooperation of carriers.

? The firm will seek consistent commission rates with all carriers.

? Marsh will provide transparency to its clients in contract negotiations, including written confirmation of price offerings.

Concerning MMC efforts to settle the suit with Mr. Spitzer, Mr. Cherkasky said the company would work quickly to resolve the matter and pay the appropriate fines and restitutions necessary. He added that the company has not set aside funds for this purpose, but it has sufficient assets to handle the costs.

"We don't believe, on the ground level, that we have lost the trust [of our clients]," said Mr. Cherkasky. "On the ground level people are asking, ?What is your corporation doing,' and I think that those have really been the issues we have heard. And we need to repair that. We are going to do that, and I think this is a major step. This is a process of profound reform in this industry."

Marsh and other insurance stocks, notably American International Group, one of the insurers said to have collaborated in the Marsh bid-rigging scheme, continued to see gains on word that Mr. Spitzer's office would not seek criminal charges against MMC.

Mr. Spitzer disclosed that decision yesterday in reaction to MMC's announcement that Jeffrey Greenberg had resigned as MMC's CEO to be replaced by Mr. Cherkasky.

Mr. Spitzer in announcing the lawsuit against MMC had suggested that the company board look carefully at its management.

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New MMC Boss Promises Firm Will Be Healthy

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