Marsh Reaches $850M Deal With N.Y. AG and Dept. Of Insurance
The Insurance Journal
Marsh & McLennan Companies, Inc. (MMC) today confirmed an agreement with the New York State Attorney General and the Superintendent of the New York State Insurance Department that resolves the actions that were commenced against MMC and Marsh Inc. over questionable brokerage compensation and account placement practices.
As a result of this agreement, the company said it would enact reforms to lead the industry in transparency and service to clients and establish an $850 million fund to compensate clients.
Under the terms of the agreement, the company neither admits nor denies the allegations in the complaint filed by the attorney general and the citation issued by the insurance superintendent.
Michael G. Cherkasky, president and chief executive officer of MMC, said: "Today's settlement is a significant step forward for MMC — its people, its clients, and its shareholders. It removes a major uncertainty for the company and enables us to focus all of our attention on serving our clients. We are also pleased to have moved quickly and decisively to resolve these matters in a manner that compensates the valued clients for whom Marsh placed insurance in the United States.
"For over 130 years, Marsh has earned its clients' trust by providing the highest quality insurance brokerage service. We deeply regret that certain of our people failed to live up to our history of dedicated client service. The acts of these employees were inconsistent with the integrity and ethics on which this company was founded and which guide our tens of thousands of other employees every day. We thank our thousands of clients who have permitted us to continue providing them high quality insurance brokerage service, and we humbly ask our existing and future clients for the opportunity to continue demonstrating our long-standing commitment to providing value and service.
"We will set the standard for transparency and demonstrate Marsh's commitment to being the industry leader for ethical business practice and client service."
Under the settlement agreement, MMC will establish an $850 million fund to compensate clients nationwide. No portion of this fund represents a fine or penalty.
The fund will compensate U.S. policyholder clients who retained Marsh to place insurance with inception dates between January 1, 2001 and December 31, 2004, where such placements resulted in contingent commissions or overrides recorded by Marsh between January 1, 2001 and December 31, 2004. These clients will be eligible to receive a pro rata portion of the fund based on the premium and the amount of estimated Market Service Agreement revenue recorded by Marsh between January 1, 2001 and December 31, 2004. These clients will be eligible to receive a payment without having to prove fault, harm, or wrongdoing.
MMC will pay the total amount of the fund in four annual installments. On June 1, 2005 and 2006, respectively, MMC will pay $255 million into the fund. On June 1, 2007 and 2008, respectively, MMC will pay $170 million into the fund.
In addition to the $232 million reserve established in the third quarter of 2004, MMC said it will take a pre-tax charge to fourth quarter 2004 earnings of $618 million to reflect the impact of the settlement.
As part of the agreement, the company has established the following reforms in its U.S. brokerage business:
* MMC has discontinued the practice of receiving contingent compensation from
insurance carriers. The company adopted this new policy effective October 1,
In addition, since the filing of the attorney general's complaint in October 2004, MMC has restructured its board of directors so that the board now consists of ten outside directors, in addition to its newly appointed president and CEO, Cherkasky, who serves as the single management director.
© 2005 by Wells Publishing, Inc.