Marsh settles dispute with California insurance regulators

Chris Rauber
Silicon Valley/San Jose Business Journal
March 14, 2006

California's Department of Insurance has reached an agreement with Marsh & McLennan Cos. Inc. requiring the giant broker to fully disclose commission agreements, officials announced Monday.

Marsh -- the subject of investigations for several years by New York Attorney General Eliot Spitzer, California Insurance Commissioner John Garamendi and other regulators -- also agreed to "put a halt" to bid rigging and other harmful practices, the California insurance department said in a March 13 statement. In addition, Marsh agreed to help the department further its investigation into questionable practices in the brokerage and insurance industries.

No financial penalties were involved, but Marsh must pay about $100 million to California policyholders due to an earlier settlement in New York. It also agreed to pay California $15,000 for the cost of its investigation, according to department spokesman Norman Williams.

The California agreement follows a two-year CDI probe, during which "multiple instances of improper practices" by Marsh were uncovered, regulators said. "This settlement is another step in our effort to clean up this industry and end secret commissions, bid rigging and other actions that are harmful to consumers," Garamendi said in the statement.

More specifically, Williams said the agreement with Marsh can be used by the department as a precedent in future cases, and carries "the same weight as a decision by the California Court of Appeals."

Marsh officials could not be reached immediately for comment on the DOI's announcement.

Last year, Marsh ranked as the largest insurance brokerage in the Bay Area, based on 2004 regional premium volume of $1.8 billion. At the time, it had 510 agents/brokers in the region.

According to California regulators, former Marsh employees used various schemes to benefit the company at the expense of clients, such as directing insurers to submit fictitious or inflated bids to help the broker maintain existing business and keep its prices high. Marsh "neither admitted nor denied the allegations," regulators said.

In a related case, Marsh and its subsidiaries reached a settlement with New York in January 2005 requiring it to pay $850 million into a fund to be distributed to policyholders affected by its use of secret commissions. Approximately $100 million from that fund will go to California policyholders, and payment will be monitored by the insurance department. All told, 33 states' insurance commissioners signed onto that agreement.

The California settlement "mirrors" much of the New York agreement, officials said March 13, stressing that Garamendi "has the authority to enforce" its provisions.

The first payment into the $850 million fund was due Nov. 1 of last year; three other payments are due June 30, 2006, 2007 and 2008, Marsh officials said last year.

Copyright © 2006 American City Business Journals, Inc.

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