New York-based Marsh & McLennan Companies has reached an agreement with the California Department of Insurance to settle charges of bid-rigging and other improper conduct, the department announced yesterday.
The arrangement, requiring the company to aid in an ongoing inquiry, piggybacks on an earlier $850 million settlement MMC made with New York.
According to a CDI statement, the California settlement follows a lengthy investigation in which multiple instances of improper practices by Marsh Inc., MMC's brokerage unit, were uncovered.
"Importantly, the settlement requires Marsh's ongoing cooperation as the commissioner continues to investigate questionable practices in the brokerage and insurance industries," the department said.
According to California officials, their investigation found that former Marsh employees would direct insurers to submit false, fictitious or inflated bids in order to help the broker maintain current business and keep its prices high.
"For example, a Marsh broker might ask an insurer to submit a quote. But rather than seek the best quote, the Marsh broker specified an amount designed to help Marsh retain its current policyholder at the desired rate or higher," the department stated.
An estimated $100 million will go to wronged California policyholders from the $850 million fund established by the global settlement reached between Marsh and New York State in January of 2005. The California department will monitor distribution of those funds.
The California settlement requires Marsh to disclose in "plain, unambiguous" language the terms of the commissions it receives. The brokerage is also required to implement standards of conduct regarding compensation from insurers consistent with the terms of the settlement.
Marsh must establish a Compliance Committee of the Board of Directors to monitor the company's adherence to the standards of conduct regarding compensation from insurers.
Improper conduct by brokerages in the sale of commercial insurance surfaced in October of 2004 when the New York Attorney General's Office revealed evidence of bid-rigging and insurers' use of hefty hidden contingency commissions to have brokerages to steer business their way.
Since that time the major brokerages have done away with those contingency commissions.
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