Marsh & McLennan started the year with a bang by naming an industry superstar as its new chief executive, who vowed to not only cut costs at the struggling behemoth but to dramatically reshape how the company does business.

Back in January, Brian Duperreault, who piloted ACE Ltd. to success as its chair and chief executive officer, was named MMC's new president and CEO. He took over for Michael G. Cherkasky, who had led the troubled firm since Jeff Greenberg had been forced to leave in the wake of bid-rigging and contingency fee abuse charges.

In August, MMC announced the elimination of 900 positions–through cuts in the back office, rather than from among those dealing with clients.

But perhaps the biggest news was the announcement by MMC last month that it would launch a new agency in 2009 to target Main Street business. As I characterized it in my Nov. 24 column, this was the equivalent of Goliath getting back to his feet and daring David to try to knock him down again.

When Marsh was hit by allegations that it had cheated clients by fixing prices with cooperating insurers, and was forced to stop accepting over $1 billion in annual contingency fee income to settle the charges, the mega-broker dumped smaller, low-margin commercial accounts in droves.

This provided a feast for Marsh's independent agency competitors, who were more than happy to help orphaned clients pick up the pieces and rebuild their insurance and risk management programs.

However, after a long soft market, and with a deepening recession undercutting top-line growth, Marsh is eager to get back into the middle-market arena. Only this time, rather than trying to force a square peg into a round hole, they are creating a new distribution organization designed to deal more cost-effectively with such a clientele.

That's bad news for independent agencies. While repeatedly noting that the new Marsh & McLennan Agency LLC would be run separately from Marsh, the fledgling entity cannot help but reflect the Marsh brand–for better or worse. (The new agency will follow its parent company's lead by swearing off contingency fees–which the firm might turn into a competitive advantage, if it can show it passes the savings on to clients.)

The new firm–which boasts it expects to become one of the biggest U.S. agencies in “a very short time”–also announced it is on the lookout for acquisitions of agencies with less than $5 million in revenue.

In a merger market slowed considerably by the credit crunch, Marsh's hunger to grow by acquisition must be music to the ears of agency principals eager to find a buyer in an increasingly challenging economic environment.

Meanwhile, the new Marsh agency also plans to do business like the New York Yankees–by adding free agents to its employee roster. That means up-and-coming producers with proven skills might have a shot at moving to a much bigger firm–a bright spot in an otherwise bleak job market.

Are agency principals concerned? Not if you go by the responses to my Nov. 12 blog entry about the development.

“I see this as a short-term strategy for Marsh, and perhaps even a publicity move,” noted one reader. “I think they are too big and too disconnected to serve the needs of the small-commercial market segment.”

A second reader said “the key is whether Marsh will be able to inculcate a different culture in its new small-biz entity. It recognizes that a different framework is required for this business segment, but recognition and execution are two quite different matters.”

Are they merely whistling past the graveyard? Or will the new Marsh agency absorb thousands of midsize accounts, like a whale cruising the ocean, vacuuming up all the plankton in its path?

Stay tuned!

Special Reports /

#9: Goliath Marsh Takes On David's Agencies

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