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Marsh & McLennan to Pay $850 Million

January 31, 2005
Giant insurance broker Marsh & McLennan has agreed to pay $850 million in restitution to policyholders harmed by its actions and adopt a new business model that avoids similar conflicts of interest. Marsh also apologized for its "unlawful" and "shameful" conduct.

"To its credit, Marsh is not disputing the problems identified in our original complaint," New York Attorney General Eliot 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 agreement comes after Spitzer's office filed a complaint and the New York State Insurance Department filed citations in October alleging that Marsh steered its clients to insurers with which it had lucrative payoff agreements, and that the firm solicited rigged bids for insurance contracts.

Under the settlement agreement, Marsh will pay $850 million over four years into a fund from which clients will be compensated. The company will work with the Attorney General's office and the Insurance Department to encourage clients to participate in the fund and to administer it nationwide.

In addition, the company will adopt stringent reforms, including an agreement to limit its 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.

"These landmark reforms will help protect against conflicts of interest and help restore the integrity of the entire insurance industry, if followed by other firms," Spitzer said, noting that the reforms go beyond the model guidelines issued recently by the National Association of Insurance Commissioners.

According to Spitzer's original complaint, Marsh collected approximately $800 million in contingent commissions in 2003. The complaint alleged that those commissions were tainted by conflicts that harmed Marsh's customers -- large corporations, small and mid-size businesses, municipal governments, school districts and some individuals.

In the last three months, six insurance executives from three companies have pleaded guilty to criminal charges related to the scheme. The joint investigation by Attorney General's office and Insurance Department is continuing.

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