Spitzer Probe Has International Impact
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, a London-based broker. "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 Spitzers investigation that would actually benefit brokers is 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.
Mr. Williams said that in the short term, it is difficult to see what the consequences are, but "we expect the impact of Spitzers investigations to be quite considerable." He predicted there will be growth in fee-based business and that the services brokers provide will have to change radically.
Andrew Cornish, chairman of the Association of Risk Insurance Managers in Commerce (Europes version of the Risk and Insurance Management Society Inc.), said: "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 alla level playing field," continued Mr. Cornish, who is also a risk manager for Centrica U.K., an energy company.
One benefit of the investigation, he 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."
Separately, speaking at a conference in New York last week, the influential leader of American International Group, Maurice Greenberg, likewise predicted major changes ahead for brokersin particular for the largest brokers. Disclosure of contingents by brokers to insureds is just one of the changes, he said.
Drawing a parallel to the airline industry, he distinguished between "old model" airlines that are either in bankruptcy or going into Chapter 11, and the "new model" Jet Blues of the world that operate with "lean operations and less fees." The new model airlines are doing well, he said.
In the broker world, "there will be change," he said, noting that the trend of larger brokers losing business to smaller counterparts has started. Brokers "that survive will be leaner and more responsive to the fiduciary relationships that they have with their insureds."
Mr. Greenberg made his comments during the Lehman Brothers Global Reinsurance conference.
As fallout from Mr. Spitzers probe continued in the United States, Employers Reinsurance Corporation, a Kansas City, Mo.-based unit of GE Insurance Solutions, announced on Nov. 23 that after an "extensive five-week internal investigation" it found two employees involved in submitting questionable quotes for Marsh & McLennan Companies.
ERC said it "identified a limited number of isolated issues" concerning the submission of inflated quotes involving premiums of less than $1 millionfewer than 10 excess workers compensation quotes over a period of four years, according to Dean Davison, a spokesperson.
One employee left the firm three years ago and the other is currently suspended, he said.
(Additional reporting by Susanne Sclafane)
Reproduced from National Underwriter Edition, December 3, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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