What Did Marsh Agree To Do?

What Did Marsh Agree To Do?

The agreement between Marsh & McLennan Companies and New York Attorney General Eliot Spitzer calls on the world's biggest insurance broker to take a number of steps, including:

• MMC will pay $850 million into a policyholder restitution fund over a four-year period, with deposits coming every June 1$255 million this year, $255 million next year, $170 million in 2007, and $170 million in 2008.
• The money which is neither a fine nor a penalty will be dispersed to those who were clients of Marsh between Jan. 1, 2001 through Dec. 31, 2004, where services resulted in the payment of contingent commissions to the broker.
• The bulk of the payments$131 million will go to clients in California, followed by New York with $94 million, Pennsylvania with $58 million, Texas at $55 million, and Illinois at $45 million.
• Clients will have until Sept. 20 to request a payment. Those who opt into the agreement would agree to stop civil litigation against MMC. The monies will be paid proportionally to the number of those in the fund.
• Marsh will no longer accept contingency fees of any kind, and will depend upon brokerage fees paid by the client for services and specific commissions from the carriers.
• Marsh agreed to disclose commissions in either dollar or percentage amounts to the client before binding a policy. The client will have to consent to the payments, in writing.
• The broker cannot accept or request any money, loans, credit or gifts from carriers, directly or indirectly. MMC also agreed to issue a summary report on the compensation Marsh receives on a client's account for the year.
• MMC issued a letter of apology for the conduct that led to the scandal, stating that admissions by former employees of Marsh and other companies made clear they “unlawfully deceived their customers.”
• The agreement forbids bid-rigging arrangements, where insurers were asked for “throwaway quotes” to give the appearance clients were receiving multiple bids from carriers when, in fact, the broker had already picked the “winner.”
• The deal also prohibits the leveraging of insurance accounts to steer business toward the broker's reinsurance brokerage firm.
• Marsh must inform the client when a wholesaler is used, as well as the compensation arrangement involved.
• Marsh will institute training of all employees involved in accounts and develop a written standard. The program must be approved by New York's insurance superintendent.
• The broker will set up a compliance committee from among its board of directors and report all activity to the board, including complaints, for five years.
• New York's insurance superintendent will inspect the firm annually for the next five years.

Reproduced from National Underwriter Edition, April 29, 2003. Copyright 2003 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.