Risk Managers Counseled On Marsh Settlement

By Caroline McDonald

NU Online News Service, April 19, 2:53 p.m. EDT, Philadelphia?Risk managers of large companies eligible to receive compensation from Marsh brokerage for fee improprieties were advised by experts here that a settlement has advantages, but they should make sure the amount covers all the damages.[@@]

The advice to exercise due diligence came from panel members at the annual conference of the Risk and Insurance Management Society Inc. They made no specific recommendation to settle but listed a number of benefits such as being paid faster and avoiding legal bills.

Marsh has agreed to repay $850 million to clients to settle a civil suit brought by New York Attorney General Eliot Spitzer, which accused the giant firm of victimizing customers by rigging bids and fixing prices with insurers who made payoffs in the form of incentive fees.

The panelists warned risk managers that if they elected to sue Marsh there was no assurance of recovery and that anyone pursuing litigation must prove liability and damages.

Paul Sugarman, with the law firm of Heller Ehrman LLP, said those who are eligible to settle with Marsh are mostly Fortune 1000 companies who retained the services of Marsh's New York global broking department between Jan. 1, 2003 and Oct. 19, 2004. He noted that the Davis Polk report commissioned by Marsh confirmed that bid-rigging was centered within the New York office on a regular basis and that the practice was confirmed by company e-mails.

"While the number of such instances that we have identified at this point is relatively limited, the individuals who have pleaded guilty to-date have stated that such discussions took place regularly, and the relevant e-mails and other communications that we have reviewed are not inconsistent with these statements," the report stated.

Sharon Siegel Voelzke, managing director of Navigant Consulting Inc., said risk managers who opt in to the settlement need to perform due diligence by collecting internal documentation, which involves compiling all policies and any files on the placement and underwriting process.

She said they need to compile insurance billing and internal premium allocation information and identify any competing bids received, agreements or disclosures on broker commissions, and names and identification of placing brokers.

The second step, said Ms. Voelzke, includes obtaining and reviewing publicly available guidance such as the National Association of Insurance Commissioners, the state attorney general, the state insurance department and RIMS.

She explained that risk managers also need to review the settlement letter and any documentation from the broker. This could include information on product lines, carriers and policies; the amount paid in premiums and consulting fees; and the amount of contingent commission or override recorded by Marsh.

Ms. Voelzke advised risk managers to determine if the documentation provided adequately supports the settlement offer, whether the broker has included appropriate policies, and if any specific lines or layers are not included in the settlement.

She added that they also need to review the settlement amount: whether it meets expectations, whether there is information explaining the basis of the calculations, and whether information about the policies and the years of the policies is included.

She told National Underwriter that that risk managers especially need to be cognizant of their own state insurance department's enforcement rules "with respect to doing any kind of independent audit or review of Marsh's calculation," adding that, "It's a significant amount of data we're talking about."

Marsh, she continued, "will be pulling information from lots of systems, lots of affiliates," asking, "Who is reviewing that calculation?"

Mr. Sugarman told NU that although risk managers he has talked to are upset by the bid-rigging and steering accusations, "ironically, they take comfort from the fact that all three brokers may have been doing similar things."

He added that bid-rigging "seems to have been confined to Marsh, but in terms of the emphasis on contingent commissions and the steering of business to carriers that were paying higher commissions and therefore potentially charging more for premium, many risk managers say they don't like it but they realize that no matter who they would have been placing insurance with, they would have been in the same boat."

Most risk managers also, he said, value ongoing relationships with their brokers and "are willing to see if they can put this behind them and begin again with their brokers in a new and squeaky clean world."

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Risk Managers Counseled On Marsh Settlement

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