Nation's largest insurance brokerage settles $850 million insurance conflicts case
Monday, January 31st 2005, 8:44 am
By: News On 6
ALBANY, N.Y. (AP) _ The nation's largest insurance brokerage firm on Monday agreed to pay $850 million to end an investigation into charges it took payoffs from insurance companies to steer clients their way.
Marsh & McLennan Companies Inc. will give $850 million in restitution over four years to policyholders, change its practices and issue a public apology calling its conduct ``unlawful'' and ``shameful,'' New York Attorney General Eliot Spitzer said.
``It is one of the largest restitution funds in history that we are aware of from a single company,'' Spitzer said. ``We are establishing new ethical ground rules for this industry.''
Marsh's president and chief executive officer, Michael G. Cherkasky, said the settlement ``is a significant step forward'' for the New York-based company.
``We will set the standard for transparency and demonstrate Marsh's commitment to being the industry leader for ethical business practice and client service,'' Cherkasky said in a statement.
Spitzer sued Marsh in October in a suit that also implicated American International Group and several other major brokers, accusing them of bid rigging and price fixing. Spitzer said brokers took payoffs from insurance companies to steer corporate clients their way rather than get the best prices for policies, as they are required.
Spitzer said the company's commission system _ which included payments from insurance companies in exchange for more deals _ essentially amounted to kickbacks and forced businesses to pay more than necessary for insurance coverage.
Several executives at Marsh and other insurance heavyweights have stepped down or been ousted amid the investigation, and the companies' stock has tumbled. In November, Marsh said it would lay off 3,000 employees.
The state Insurance Department filed citations against Marsh after Spitzer's suit.
Other companies may feel compelled to match Marsh's new practices, Spitzer said.
``To its credit, Marsh is not disputing the problems identified in our original complaint,'' Spitzer said. ``Instead, the company has embraced restitution and reform as a way of making a clean break from the practices that misled and harmed its clients in the past.''
The settlement is the latest for Spitzer, who has secured more than $1 billion in settlements from Wall Street firms for conflicts of interest. The Democrat plans to run for governor next year.
Marsh had already made a number of changes after Spitzer's lawsuit was filed. It ousted Chairman and Chief Executive Officer Jeffrey Greenberg and named Cherkasky, 54, as president and CEO. Cherkasky, who was head of the company's insurance brokerage unit, had once been Spitzer's boss in the New York district attorney's office.
In late October, Marsh announced that it was permanently eliminating the practice of receiving any form of contingent compensation from insurance companies. A number of property and casualty insurance companies announced that they wouldn't pay such incentive fees anymore.
There had been talk last fall that Marsh was trying to settle the case with a payment of $500 million. Spitzer said at the time that he would seek ``disgorgement of ill-gotten gains.''
Spitzer argued in his civil suit that Marsh collected $800 million in so-called contingent commissions in 2003 alone. Spitzer also accused the company of soliciting rigged bids for insurance contracts. The practices go back to at least the 1990s, he said.