Marsh Seeks Advantage with ‘Transparent’ Business Plan

The day after sacking its chief executive officer, Marsh & McLennan Companies Inc. announced that it is adopting “significant reforms” to its business operations, including the permanent elimination of incentive fees at the center of a price fixing and bid rigging probe.

The board of the largest U.S. insurance brokerage accepted the resignation of Jeffrey W. Greenberg from the posts of chairman and chief executive. The ouster appeared aimed at clearing the way for settling civil charges filed early last month by New York Attorney General Eliot Spitzer, who accused the New York-based company of bid rigging and price fixing.

Cherkaksy takes over
The board replaced Greenberg with Michael Cherkasky, who had the week before been named head of Marsh Inc., the company’s risk and insurance services unit. Before that, Cherkasky had been chief executive of Marsh Kroll, the Marsh & McLennan risk consulting subsidiary.

Marsh & McLennan said the changes in its Marsh Inc. unit “will ensure that the best interests of its clients are served and that every transaction is executed in accordance with the highest professional and ethical standards.”

Among the reforms to be initiated by Jan. 1 is a plan to end to all incentive fees. “Marsh has permanently eliminated the practice of receiving any form of contingent compensation from insurers,” the announcement said.

Contingent commissions–also known as marketing service agreements or placement service agreementsare fees paid to brokers by insurance companies in exchange for getting more business.

Cherkasky told a conference call with reporters that Marsh & McLennan also was centralizing its insurance placement process to give the company “the ability to get the best deal for our clients” and to create a system that can be easily audited.

He said he believed that moving quickly to adopt reforms will “give us competitive advantage” in the marketplace.

Employees suspended
Cherkasky also revealed that the company has taken action against several Marsh & McLennan employees linked to the Spitzer probe. Company spokeswoman Barbara Perlmutter said four employees were suspended and one was fired, but declined to give further details. Cherkasky said that if an internal investigation finds others involved in wrongdoing, “they will absolutely not stay” with the company.

Cherkasky also said he believed there were “very, very, very few” instances of price fixing and added that the company “will work with the attorney general to figure out an appropriate restitution package.”

In announcing a civil suit against Marsh & McLennan on Oct. 14, New York Attorney General Eliot Spitzer called the incentive fees “kickbacks” and said they were a factor in businesses being forced to pay more than necessary for property and casualty insurance. Spitzer also accused Marsh & McLennan of bid rigging and price fixing and said he wouldn’t deal with the current management, which precipitated Greenberg’s ouster.

Marsh & McLennan said that “all revenue streams will be 100 percent transparent to clients.” It said it would outline for the clients all fees, retail commissions, wholesale commissions and premium finance compensation.

It added that the company “will insist that insurance companies show commission rates on all policies.”

Marsh & McLennan also has formed a global compliance organization, reporting to Cherkasky, who holds the titles of president and CEO, and to the board’s audit committee. The chairman’s position has not yet been filled. This organization’s scope will include all Marsh Inc. businesses worldwide, the announcement said.

The company also plans to initiate annual compliance and ethics training.

Leadership in reform
“These reforms are the next critical step to ensure the integrity and quality of our relationships with clients and to resolve our legal and regulatory issues,” Cherkasky said in a statement accompanying the announcement. “In introducing these significant industry-leading changes, we are demonstrating our commitment to our clients and the markets and taking a leadership position in industry reform.”The departure of Greenberg, who had been CEO of Marsh & McLennan since November 1999, was aimed at spurring settlement talks with New York’s attorney general, as is the new reform package.

After the announcement of Greenberg’s ouster, Spitzer said the board’s action “permits Marsh and this office to move forward toward a civil resolution of our lawsuit.” Spitzer added that any criminal action would not be against the company but against individuals.

Cherkasky spent 16 years working in the criminal justice system, some of them as Spitzer’s boss in the New York district attorney’s office.

Associated Press reports were used in this story. Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.ELSE: