Two of the world's largest brokerage firms are in compliance with a settlement agreement that bars them from taking contingent commissions, according to a consultant's review, the New York Insurance Department said today.
Kermitt Brooks, first deputy insurance superintendent, announced that Marsh and Willis are complying with the terms of an arrangement that was reached in 2005 with both the insurance department and state attorney general.
The settlement followed an investigation by then Attorney General Eliot Spitzer, who alleged the brokers engaged in kickback schemes to steer clients to certain insurers in exchange for lucrative volume-based contingent commissions.
The 2005 settlement agreements provided for payment of restitution to policyholders and adoption of business reforms designed to avoid conflicts of interest and an end to contingents.
Marsh is considered the nation's largest insurance brokerage and Willis the third largest.
"To their credit, both companies have cooperated fully with the department and are living up to the terms of the settlements," Mr. Brooks said in a statement. "They have extensively revised their compensation practices so clients can be confident transactions are transparent and conflicts of interest are avoided."
The department said it released two reports by consultant RSM McGladrey. The department engaged RSM to monitor and test both Marsh and Willis for compliance with the agreements. Such compliance also is pertinent to subsequent Multistate Regulatory Settlement Agreements patterned after the New York agreement.
RSM found that both restitution funds–$850 million for Marsh and $50 million for Willis–were appropriately funded and disbursed, with more than 99 percent of the settlement checks already cashed.
The consultant also found general compliance with disclosure requirements, the department said. These include disclosing to clients quotes sought and received on behalf of those clients whenever a policy is placed, renewed, or otherwise serviced.
Any compensation the broker would receive in connection with those quotes must be disclosed and consented to by the client to ensure the client is fully aware of all available options. To help prevent conflicts of interest, employees of the brokers are prohibited from accepting gifts of material value from insurers.
The companies are required to make annual disclosure to clients of compensation received during the preceding year or contemplated to be received in connection with their business.
Brokerages in the settlement must also file an annual report with the department listing the amount of each type of compensation it received from insurers during the previous year. Both companies were found to have made good faith efforts to comply, the department said.
A spokeswoman for the Illinois Department of Financial and Professional Regulation, which oversees the state's Office of Insurance, said Aon insurance brokerage, headquartered in Chicago, and Arthur J. Gallagher, based in Itasca, Ill., received similar audits that are scheduled to be released tomorrow.
Both entered into similar restitution and business reform agreements as Marsh and Willis in 2005 after allegations were made of like conduct.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.