The nation’s largest insurance brokerage on Monday agreed to pay $850 million in restitution to end an investigation into bid rigging, price fixing and the use of hidden incentive fees, according to New York Attorney General Eliot Spitzer.
Marsh & McLennan Inc. will provide $850 million over four years to policyholders hurt by the conflicts of interest and will change its practices, Spitzer said. The company also will issue a public apology calling the conduct “unlawful” and “shameful,” Spitzer said. And the company will publicly promise to adopt reforms, he said.
“It is one of the largest restitution funds in history that we are aware of from a single company,” Spitzer said. “We are establishing new ethical ground rules for this industry.”
He said other companies will likely feel compelled to match Marsh’s new practices.
“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.”
The reforms will go beyond guidelines recently issued by the National Association of Insurance Commissioners. Spitzer urged all companies to adopt them.
The state Insurance Department filed citations against Marsh after Spitzer’s suit.
Spitzer sued Marsh in October. That suit also implicated American International Group and several other major insurance companies. Spitzer said brokers took payoffs from insurance companies to steer corporate clients their way rather than get the best prices for property and casualty policies, as they are required.
The agreements — also known as contingent commissions or placement service agreements — are above ordinary commissions which brokers traditionally receive from insurance companies.
After the suit was filed, Marsh made a number of changes to its management team and its business practices.
It ousted Chairman and Chief Executive Officer Jeffrey Greenberg and named Michael Cherkasky, 54, as president and CEO. Cherkasky had been head of Marsh Inc., the company’s insurance brokerage unit. Earlier in his career, Cherkasky spent 16 years in the criminal justice system, some of them as Spitzer’s boss in the New York district attorney’s office.
In late October, Marsh announced that it was permanently eliminating the practice of receiving any form of contingent compensation from insurance companies. A number of property and casualty insurance companies announced that they wouldn’t pay such incentive fees anymore.
Last fall, there had been talk that Marsh was trying to settle the case with a payment of $500 million.
Spitzer at the time said: “It is going to be a principle of disgorgement of ill-gotten gains. We will do the calculation and it could be far higher than the $500 million.”