Marsh & McLennan Cos. agreed to pay $850 million to settle charges of fraud and anti-competitive practices stemming from an investigation by New York State Attorney General Eliot Spitzer.
Under the agreement, the world’s largest insurance broker will provide restitution to its policyholders who were harmed by its actions and adopt a new business model designed to avoid conflicts of interest, according to an announcement made by Spitzer and the superintendent of the New York State Insurance Department. Marsh’s own statement stressed that none of the payment is a fine or penalty and that it neither admits nor denies the allegations.
“To its credit, Marsh is not disputing the problems identified in our original complaint,” Spitzer said in a statement. “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.”
Marsh’s president and chief executive officer, Michael G. Cherkasky, issued an apology, stating: “We deeply regret that certain of our people failed to live up to our history of dedicated client 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.”
In mid-October, Spitzer alleged that Marsh steered its clients to insurers with which it had lucrative payoff agreements, and that the firm solicited rigged bids for insurance contracts. Later that month, Jeffrey Greenberg stepped down as Marsh’s chairman and CEO; he was succeeded the Cherkasky, at that time the chief executive of the company’s insurance-broking unit (and previously Spitzer’s boss at the New York district attorney’s office, according to The New York Times).
In the last three months, six insurance executives from three companies have pleaded guilty to criminal charges related to the scheme. Spitzer’s statement noted that the joint investigation by attorney general’s office and Insurance Department is continuing.
Under the settlement agreement, Marsh will pay $850 million over four years into a fund from which clients will be compensated. According to the Times, however, that figure amounts to only about half of the improper payments to Marsh that Spitzer had alleged.
In addition, the company will adopt what Spitzer’s office called “dramatic new reforms,” including a limit on insurance brokerage compensation to a single fee or commission at the time of placement, a ban on contingent commissions, and a requirement that all forms of compensation will be disclosed to and approved by Marsh’s clients.
Marsh also agreed to establish a compliance committee of its board of directors and has appointed a chief compliance officer.
These “landmark” reforms will “help restore the integrity of the entire insurance industry, if followed by other firms,” said Spitzer, who also noted that the measures surpass the model guidelines issued recently by the National Association of Insurance Commissioners.