Marsh & McLennan Companies, the nation’s largest insurance broker, agreed Monday to pay $850 million to resolve allegations of fraud and anti-competitive practices.
The sum will be used to provide restitution to Marsh policyholders who were harmed by its actions, and the company has agreed to adopt a new business model designed to avoid conflicts of interest.
The agreement comes after New York Attorney General Eliot Spitzer filed a lawsuit and the Insurance Department filed citations in October accusing Marsh of cheating its customers by rigging prices and steering them to insurers with which it had lucrative payoff agreements.
“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.”
Under the terms of the agreement, Marsh admitted to no wrongdoing. However, the company apologized for its “unlawful”and “shameful” conduct, and promised to adopt reforms, Sptizer said.
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 new 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 plead 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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This kind of behaviour is not really that surprising. It’s not like Marsh are the only company doing it, just one of the biggest. How else are they going to afford their long expensed lunches on a Friday?
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