U.K. Execs: Spitzer Probe Has Global Impact

U.K. Execs: Spitzer Probe Has Global Impact

By Mark E. Ruquet

NU Online News Service, Nov. 30, 4:25 p.m. EST?Insurance executives in London, during a recent industry symposium there, said that allegations of bid-rigging and other questionable activities by Marsh brokerage will have a far-reaching impact not limited to U.S. insurers.[@@]

"Our industry continues to attract negative publicity," noted Mike Hammond, chief executive officer with Jardine Lloyd Thompson Risk Solutions, an insurance broker based in London. "Where it is justified, it is essential that the industry responds positively, transparently and effectively to the challenges that inevitably will follow."

The remarks came as part of a Nov. 19 JLT-sponsored risk symposium. A transcript from the meeting was furnished to National Underwriter.

Martin Williams, a specialist insurance research marketer for HSBC, a banking and financial services company based in London, said that one fallout from New York Attorney General Eliot Spitzer's investigation would actually benefit all brokers in the disappearance of volume contingent commissions.

He called the disappearance of these types of commissions a minor issue and one that would ultimately benefit smaller brokers who have not been able to compete with these volume placements.

Mr. Spitzer sued Marsh & McLennan Companies, the parent company of New York City-based Marsh Inc., over allegations the insurance broker used bid-rigging and other manipulation of the placement of insurance contracts in return for profitable volume placement contingent commissions from carriers.

However, Mr. Williams said bid-rigging is "potentially much more serious; even if the operation was fairly limited, reputational risk is clearly high."

He said that in the short term, it is difficult to see what the consequences are, but "we expect the impact of Spitzer's investigations to be quite considerable."

Mr. Williams predicted there will be growth in fee-based business and the services brokers provide will have to change radically.

The spread of the investigation into the life and health business "could open up a can of worms," said Mr. Williams, which could ultimately push a call for more regulations that would be more "substance over form."

"I do not want to say too much on Spitzer, but it is a hurricane through our business," noted Andrew Cornish, chairman of the Association of Risk Insurance Managers in Commerce (Europe's version of the Risk and Insurance Management Society, Inc.) and risk manager for Centrica U.K., an energy company. "I think it will have long-term repercussions."

"Transparency is going to be the call for the immediate future, and it needs to be the same for all?a level playing field," he continued.

One benefit of the investigation, Mr. Cornish suggested, is that it may encourage efficiency within brokerage services with the loss of some of these placement commissions. However, achieving efficiency in the industry is not something that can be done by brokers alone, but needs the efforts of brokers, underwriters and risk managers "to make this industry work better."

Mr. Hammond noted that it is difficult for buyers to understand how the insurance market works when they see continuous and unpredictable swings in pricing over the years.

"It is very hard to actually work with your board or your finance director when they cannot see the logic of the way things move," observed Mr. Cornish.