Reaction Fast & Furious From Agents

By Mark E. Ruquet

NU Online News Service, Oct. 15, 4:15 p.m. EDT?Marsh insurance brokerage announced it will do an internal investigation and stop accepting the contingency fees from insurance carriers that New York Attorney General Eliot Spitzer has labeled improper payoffs. [@@]

The announcement came as portions of the agent and broker insurance community condemned the Marsh price-fixing practices alleged by Mr. Spitzer in a lawsuit filed yesterday.

Jeffrey W. Greenberg, chairman and chief executive officer of New York-based Marsh & McLennan Companies, Marsh's parent, said, "We are greatly disturbed by the allegations of wrongdoing. We take them very seriously, and we are conducting a thorough investigation of these allegations.

"As the facts are being reviewed, we believe it is in the best interest of our clients to suspend MSAs (market service agreements) immediately."

Yesterday evening, the company's board of directors said it is conducting its own review and would draw its own conclusions. It added that, "We have full confidence in the company's leadership."

Earlier in the day Mr. Spitzer had suggested the board should consider removing the company's leadership.

Mr. Spitzer said his office is suing Marsh for fraudulent and deceptive acts related to steering business to insurance carriers paying high contingency fees.

The company is accused of steering accounts to carriers who were paying the highest fees for the business rather than seeking competitive quotes and arranging for fictitious high bids to be submitted from various insurers involved in the scheme.

In a statement, the Alexandria, Va.-based Independent Insurance Agents & Brokers of America said it "condemned bid-rigging and steering, and called for disclosure by brokers of placement service agreements."

Bob Rusbuldt, the chief executive officer of IIABA, called for "rigorous prosecution of any illegal activity."

Mr. Rusbuldt said that a "few bad actors who engage in these unlawful practices betray the public's trust and unfairly damage our industry's reputation."

He said the association has adopted a policy that brokers should fully disclose contingency agreements, including the nature of the agreement. He said clients should be aware that all questions will be answered fully.

In an interview with National Underwriter, Mr. Rusbuldt said the public needs to be aware that this issue pertains to brokers, not agents, and that the distinction is not being made clearly. However, the events have potentially damaged the trust between brokers and clients.

"I think brokers have a significant issue with trust needing to be restored," he said, adding that they must practice complete and total transparency when it comes to explaining the contingency fee system.

"You, as a broker, have the responsibility to display total transparency in order to restore that trust," he said.

He added that the association would be willing to work with all state regulators on designing regulations to achieve this goal, but cautioned against "onerous and burdensome regulations that go beyond the consumer's needs."

"I hope this does not lead into a broad brush picture that all compensation is bad," he added, noting that properly designed incentive plans are part of the foundation for a strong sales culture. But illegal activity should be prosecuted fully.

Richard A. Poppa, president and chief executive officer of the Independent Insurance Agents & Brokers of New York, said these illegal actions, if proven, are "the exception and not the rule for this industry."

On the issue of trust, he said agents will need to redouble their efforts, if the allegations are proven, to re-establish their trust with consumers.

"I think it is important that all of us in the industry do what is best for the customer, and 99 percent of them do," he said, adding, "There are always exceptions. Customers have to put what is happening in context and not view this as common practice. If the allegations are proven, this is the exception and not the way most agents and brokers do business."

Many other associations refused to comment.

The Council of Insurance Agents & Brokers, based in Washington, D.C., which represents the major U.S. brokers, of which Marsh is a member, did not return a request for comment. Neither did the National Association of Professional Insurance Agents.

Mary Christiano, a spokeswoman for the Professional Insurance Agents Group, which represents New York and the Insurance Brokers Association of New York, said, "We are monitoring the situation with concern and are not commenting further at the moment."

Other brokers who have received subpoenas in the investigation had some comment.

Chicago-based Aon, regarded as the world's second largest insurance broker after Marsh, said it is not aware of any such practices as Marsh is accused of in its practice.

"To our best knowledge, our employees have not engaged in [these practices]," the company said in a statement. It added it is continuing to cooperate with the attorney general.

Aon's founder and chief, Patrick Ryan, announced on Sept. 30 that he is resigning, pending the finding of a new successor. The heir apparent, Michael D. Halleran, president and chief operating officer, has removed himself from consideration for the position.

National Financial Partners Corp., which said it received three subpoenas as part of the investigation, said its own investigation uncovered no such fraudulent or illegal activities. NFP is a New York City-based financial services firm with over 1,500 producers in 40 states and Puerto Rico.

A spokesman for London-headquartered Willis declined to comment, as did Chicago-based Hub International. Hub's subsidiary, New York-based Kaye's Group, and Willis received subpoenas.

On the ratings front, Fitch Ratings placed MMC and Marsh on rating watch negative. It noted that the potential cost of litigation could "significantly affect" the firm.

Moody's said it is watching developments and would comment further as events develop.

Special Reports /

Reaction Fast & Furious From Agents

Related Stories

Recommended For You