In announcing a civil suit against Marsh & McLennan on October 14, New York Attorney General Eliot Spitzer called the incentive fees “kickbacks” and said they contributed to clients being forced to pay more than necessary for property and casualty insurance (See Spitzer Takes On Contingent Commissions ). Spitzer also accused Marsh & McLennan of bid-rigging and price fixing and said he wouldn’t deal with the current management. Contingent commissions also known as marketing service agreements or placement service agreements are fees paid to brokers by insurance companies in exchange for getting more business.
Tuesday’s reform moves came after the board of the nation’s largest insurance brokerage on Monday accepted the resignation of Jeffrey Greenberg as chairman and chief executive. Stepping in was Michael Cherkasky, 54.
Marsh & McLennan’s Web site statement said the Marsh Inc. reforms include by January 1, 2005:
- Marsh has permanently eliminated the practice of receiving any form of contingent compensation from insurers.
- Marsh will seek consistent commission rates so that insured clients are better able to compare costs of alternative proposals.
- All revenue streams will be 100% transparent to clients. Each client will receive a full accounting of all revenue earned by Marsh, including fees, retail commission, wholesale commission and premium finance compensation.
- Marsh will insist that insurance companies show commission rates on all policies.
- Marsh will provide transparency to its clients regarding its negotiations with insurers on their behalf.
Marsh also said it has formed a global compliance organization that reports to both Cherkasky and to the Audit Committee of Marsh & McLennan’s Board of Directors. This organization’s scope will include all Marsh businesses worldwide.
Among the compliance process changes planned are:
- A review of existing professional standards to ensure that they are enough to support the reforms in the new business model.
- The requirement that all key business leaders submit compliance certifications for their areas.
- Annual compliance and ethics training and certification for all colleagues.
- The submission of quarterly “state of compliance” reports to the Audit Committee of Marsh & McLennan’s Board of Directors.
- Regular compliance verification meetings between compliance professionals and underwriters to ensure that Marsh brokers are meeting compliance requirements.
- A formal companywide review process to ensure that new products and services comply with Marsh’s ethical and professional standards.
- An internal, responsive, and secure compliance and ethics hotline.
- An independent annual review of Marsh’s compliance processes and professional standards.
“These reforms are the next critical step to ensure the integrity and quality of our relationships with clients and to resolve our legal and regulatory issues. In introducing these significant industry-leading changes, we are demonstrating our commitment to our clients and the markets and taking a leadership position in industry reform,” Cherkasky said in the announcement.