Will Marsh Scandal Result In Placement Fee Ban?

"We have to see how it all plays out," said Mike Barry, director of public affairs for the New York State Insurance Dept. "There could be regulatory or legislative initiatives regarding PSA's (placement service agreements) that come out of this." Marsh has announced they will suspend the PSA arrangements while they investigate.

Mr. Barry said actions could range from a total ban of the practice to more pronounced disclosure rules.

"I know the New York State Insurance Dept. would welcome some legislative clarity on the subject," Mr. Barry said.

Mr. Spitzer in his suit alleged the company steered insurance contracts to AIG, ACE, The Hartford and Munich American Risk Partners in exchange for what amounted to kickbacks. Brokers have maintained that the so-called Placement Service Agreements constitute a decades-old industrywide practice and are fully disclosed to the purchasers of insurance.

Mr. Barry recalled that as far back as 1998 the department issued a circular letter requiring insurers to disclose to the insureds all fee arrangements between insurers and brokers.

Four years later in a survey of insurers on the issue, Mr. Barry said that 121 out of 135 did not have the fee arrangements.

Officials of the National Association of Insurance Commissioners could not be reached for comment.

But when the investigation was first reported last spring there was little interest in developing model legislation around the subject at the NAIC when the group met for the summer quarterly session in June.

Susan Nolin, deputy executive director of the National Conference of Insurance Legislators, said the issue will be on the agenda at the group's annual meeting next month for discussion.

So far, industry trade representatives are taking a wait and see attitude.

Barry Meiners, spokesperson for the Council of Insurance Agents and Brokers, said, "Given the enormity of the topic, we don't want to rush to conjecture as to what it means for the industry."

Joseph Annotti, spokesman for the Chicago-area-based Property Casualty Insurers Association of America, said his organization did not believe that contractual relations between private parties should be regulated.

"The consumers affected by these transactions are sophisticated corporate insurance buyers, many of whom consult with or retain risk managers to assist in the purchasing process," Mr. Annotti said. "These individuals understand contractual relationships and understand that if a contractual or fiduciary relationship is broken, they can pursue a private right of action against the broker."