There has been a lot of press lately regarding New York Atty Gen’l Spitzer’s complaint filed against Marsh, Inc. The allegations state that Marsh received “contingent commissions” from insurance companies, and that Marsh rigged quotes to steer business for the sake of increasing “contingent commissions”.
In the complaint, Spitzer makes three basic claims:
The first, and most serious, is that Marsh stepped over the line when it forced carriers to “quote high” on some accounts, or steer them to certain insurance companies. I expect this complaint may find traction. Through mergers and acquisitions (approved by New York State), Marsh has basically acquired most of it’s top competitors. I won’t use the word monopoly, but Marsh’s size has made them so strong that Marsh can now dictate to insurance companies and control the insurance marketplace. “Normal” brokers don’t have the ability to “kill” an insurance company by withholding business nationally, or to dictate that an insurance company “quote high” so that the carrier will lose the business. Even if a “normal” broker wanted a carrier to do such a thing, the carrier would just never do it. Only Marsh, and possibly one or two other megabrokers (Aon and Willis), have that kind of power. It seems ironic to me that the very New York State that approved Marsh’s mergers and acquisitions now complains that Marsh isn’t competitive and that Marsh dictates terms to the insurance marketplace.
The second allegation is that “contingent commission” arrangements, in and of themselves, are “illegal”, because they created an incentive for Marsh to steer business to certain carriers, brokers don’t tell customers about them, and brokers do “nothing” to earn them. Spitzer’s position is that companies gain nothing from it’s sales force’s knowledge, feedback, or experience (“intellectual property”), so any payment is unjustified. Certainly, a free marketplace should allow manufacturers, wholesalers, and insurance carriers to incentivize excellence in their product distribution system (insurance companies have no salesmen). I doubt this complaint will be justified, as profit sharing is no different from any other sales incentive, including factory incentives, sales bonuses, and commissions. There is always an incentive for any business to maximize its profits. It’s what makes free enterprise so efficient and responsive. Likewise, there is always the temptation – for some – to abuse fair business practice in order improperly maximize profit. That temptation is usually held in check by moral standards or by competition – and hopefully both. It’s not the profit incentive that is bad, it’s the abuse of fair business practices for profit that’s bad. I think Spitzer’s targeting the profit motive itself is an unsettling trend that is likely to have a chilling effect on business in New York and elsewhere. The fault in the Marsh case may, in fact, be a lack of competition (or Marsh’s excessive ability to control the marketplace) and some Marsh employees giving in to the temptation that comes with that kind of power. I find it ironic that the State of New York finds the profit motive itself illegal.
The third allegation involves Marsh not making known its “illegal contingent commissions” arrangement to clients or investors. No retail outlet I know of has ever been required by any governing body to disclose to its customers either the amount of its income nor where it’s derived from. Can you imagine the State requiring this of your auto dealer or super market? This may be an example of Spitzer going beyond correcting Marsh’s wrongdoing, and I would not expect this charge to stand up in court. Notably, Spitzer’s complaint recognizes that Marsh has declared its contingent commission arrangements on it’s website since 1998, but Spitzer states that Marsh’s declaration is “false and misleading” because brokers “do absolutely nothing” to earn the incentive.
The base of what Spitzer is doing with regard to Marsh’s possibly steering clients or fixing prices may, unfortunately, be necessary to correct a particular wrongdoing at Marsh. To the extent that Spitzer’s complaint goes beyond the limitations of reasonably correcting wrongdoing, it becomes apparent that there are other factors motivating the Attorney General’s suit. Spitzer has an obvious – and reasonable – desire for political success. Unfortunately, Spitzer’s motive for political success, like Marsh’s motive for profit, brings with it the temptation to abuse monopolistic power and the public trust. Spitzer’s excess to attain his political goals is as improper as Marsh’s actions to attain profit.
Finally, it would have been better if New York had preserved healthy competition in the first place by disallowing the megamergers that led to this outcome. Blaming profit sharing misses the point, and diverts attention from the real root of the problem. New York should have never allowed Marsh the monopolistic power that led to filing this complaint.
Although your comments would appear to directed in the correct direction (I am sure Mr. Spitzer has visions of being the next Democratic Candidate for Governer of New York), I do not think you fully understand the issue.
Your first point is very true. Marsh was price fixing and going to a carrier to present a false quote is wrong. You can not argue that.
The second a third point seems to be the same issue. But, I do not consider the contracts that Marsh had with carriers to be the same as the “contingent” contract an independent agent may know. These contracts were in place to control were business went and would get paid more for renewing business at certain percentages compared to expiring. When you couple these contracts with the price fixing allegation you get into some serious moral issues.
I do not think it is fair to require any company to reveal amount of profit (commission) or profit sharing they receive, but I do find fault in asking a carrier to provide an inflated price to give the appearance of a competitive quote.
Isn’t it incredibly interesting that Spitzers former boss and mentor is the newly appointed CEO at Marsh. I can think of several different story lines leading up to this development that would make for an interesting book. The question is, would it be fiction or non-fiction?!
In the end, it’s Spitzer that is contributing to the problem. During a volatile election, he has succeeded in causing the segment to tank in the market, trending the market down and creating uncertainty. In the end, the loss of capital due to this expanding witch hunt is counterproductive.
To me it would appear that Mr. Spitzer is more focused on getting the Greenberg family than actually correcting a wrong at M&M.
Am I the oly one that finds it very odd that once Mr. Greenberg resigned he wants to drop the legal charges against the company.
Also the one BIG point never brought out is was the “dummie quotes in an admitted or non-admitted company? It would have a major impact in placing coverage in NY.
Bit if all tha Mr Spitzer claims is totally true, why was the D.O.I. never brought in prosecute and why was M&M’s license never brought under review.
I can’t wait until next year to see what the political climate in this state will be like.
Look, if Marsh was accepting fees from clients based on the supposition that premiums quoted were net of commissions, and then accepting compensation from the carrier, and all the while misrepresenting the notion that they were shopping the market on behalf of the client, (ah, should I say bid-rigging), then they deserved harsh treatment. The mere fact that they, and others, have immediately suspended their “contingent” contracts smacks of untoward behavior. I can only hope that there aggregious behavior will not impact the legitimate profit sharing plans that are based on valuable notions such as field underwriting, loss ratios retention etc. I fear that there bad behavior will have a trickle down effect impacting honorable agents and agencies, and perhaps the jobs of unsuspecting CSR’S around the country. Carriers, if your listening, don’t use this as an excuse to further slash agency compensation under the pretense of consumer advocacy.
There should be full disclosure of the commissions paid to insurance brokers.
Why should this be any different than disclosing (and negotiating) commissions in a real estate transaction?? If the industry is worried about the impact this may have on commission income, then I suggest that the players consider how they can differentiate themselves from their competitors by showing their clients how they add value to their insurance program (i.e., they may DESERVE a higher commission for the type and amount of work they are doing for their client, etc.).
Anyone in this industry at a marketing,underwriting or company management level has been pressured by the big brokers for years. I’ve watched it, felt it, lived it for 30 years. The industry turned a blind eye to the incestuous relationship between AIG and Marsh for many years and secretly kidded about Greenberg’s Glass Tower and passion to ultimately eliminate all other insurance companies until there is no one left but AIG & Marsh. Maybe Spitzer ought to look and the other “Big Ten” Brokers as well. They all play the game.
Spitzer may be making political hay out of all this, but one fact remains. Employees of AIG, Ace and Marsh broke the law, and enriched themselves by doing so.
In an industry where trust is such an important part of every relationship, this behavior is reprehensible. And if you think the lower level employees were acting without the knowledge of their superiors, I think you’re being a little naive. They should nail these bastards to the wall. Someone mentioned “What about the 60,000 employees?” I agree that’s an issue, but execs should not be allowed to get away with breaking the law just because they employ a lot of people.
It disgusts me that while the majority of the industry works very hard and ethically, and these bunch of scumbags line their pockets by taking advantage of their customers and the industry. And if this situation was the result of collusion between the Greenbergs, Spitzer should investigate that to determine if it’s true. I have a very easy time believeing that could be the case, and if it is, I don’t want them to get away with it. If they’re clean, then the minimal harm they endure is worth protecting the system. And if they’re not, I want them to go to jail. Not fines, JAIL.
Regarding the comment that brokers shouldn’t have to disclose their commissions, the writer misses one key point: We’re talking about brokers, not agents. Agents owe their fiduciary alliegance to the insurance company, so their commission is no one’s business but theirs and the insurance company. Brokers, however, owe their fiducuary duty to the INSURED, so they should have to disclose their commission to the insured. This allows the insured to know if the broker is acting in the insured’s best interests.
There has been a lot of press lately regarding New York Atty Gen’l Spitzer’s complaint filed against Marsh, Inc. The allegations state that Marsh received “contingent commissions” from insurance companies, and that Marsh rigged quotes to steer business for the sake of increasing “contingent commissions”.
In the complaint, Spitzer makes three basic claims:
The first, and most serious, is that Marsh stepped over the line when it forced carriers to “quote high” on some accounts, or steer them to certain insurance companies. I expect this complaint may find traction. Through mergers and acquisitions (approved by New York State), Marsh has basically acquired most of it’s top competitors. I won’t use the word monopoly, but Marsh’s size has made them so strong that Marsh can now dictate to insurance companies and control the insurance marketplace. “Normal” brokers don’t have the ability to “kill” an insurance company by withholding business nationally, or to dictate that an insurance company “quote high” so that the carrier will lose the business. Even if a “normal” broker wanted a carrier to do such a thing, the carrier would just never do it. Only Marsh, and possibly one or two other megabrokers (Aon and Willis), have that kind of power. It seems ironic to me that the very New York State that approved Marsh’s mergers and acquisitions now complains that Marsh isn’t competitive and that Marsh dictates terms to the insurance marketplace.
The second allegation is that “contingent commission” arrangements, in and of themselves, are “illegal”, because they created an incentive for Marsh to steer business to certain carriers, brokers don’t tell customers about them, and brokers do “nothing” to earn them. Spitzer’s position is that companies gain nothing from it’s sales force’s knowledge, feedback, or experience (“intellectual property”), so any payment is unjustified. Certainly, a free marketplace should allow manufacturers, wholesalers, and insurance carriers to incentivize excellence in their product distribution system (insurance companies have no salesmen). I doubt this complaint will be justified, as profit sharing is no different from any other sales incentive, including factory incentives, sales bonuses, and commissions. There is always an incentive for any business to maximize its profits. It’s what makes free enterprise so efficient and responsive. Likewise, there is always the temptation – for some – to abuse fair business practice in order improperly maximize profit. That temptation is usually held in check by moral standards or by competition – and hopefully both. It’s not the profit incentive that is bad, it’s the abuse of fair business practices for profit that’s bad. I think Spitzer’s targeting the profit motive itself is an unsettling trend that is likely to have a chilling effect on business in New York and elsewhere. The fault in the Marsh case may, in fact, be a lack of competition (or Marsh’s excessive ability to control the marketplace) and some Marsh employees giving in to the temptation that comes with that kind of power. I find it ironic that the State of New York finds the profit motive itself illegal.
The third allegation involves Marsh not making known its “illegal contingent commissions” arrangement to clients or investors. No retail outlet I know of has ever been required by any governing body to disclose to its customers either the amount of its income nor where it’s derived from. Can you imagine the State requiring this of your auto dealer or super market? This may be an example of Spitzer going beyond correcting Marsh’s wrongdoing, and I would not expect this charge to stand up in court. Notably, Spitzer’s complaint recognizes that Marsh has declared its contingent commission arrangements on it’s website since 1998, but Spitzer states that Marsh’s declaration is “false and misleading” because brokers “do absolutely nothing” to earn the incentive.
The base of what Spitzer is doing with regard to Marsh’s possibly steering clients or fixing prices may, unfortunately, be necessary to correct a particular wrongdoing at Marsh. To the extent that Spitzer’s complaint goes beyond the limitations of reasonably correcting wrongdoing, it becomes apparent that there are other factors motivating the Attorney General’s suit. Spitzer has an obvious – and reasonable – desire for political success. Unfortunately, Spitzer’s motive for political success, like Marsh’s motive for profit, brings with it the temptation to abuse monopolistic power and the public trust. Spitzer’s excess to attain his political goals is as improper as Marsh’s actions to attain profit.
Finally, it would have been better if New York had preserved healthy competition in the first place by disallowing the megamergers that led to this outcome. Blaming profit sharing misses the point, and diverts attention from the real root of the problem. New York should have never allowed Marsh the monopolistic power that led to filing this complaint.
Congratulations, “Dont”! Your response is both well reasoned and articulate.
Don’t mention the name,
Although your comments would appear to directed in the correct direction (I am sure Mr. Spitzer has visions of being the next Democratic Candidate for Governer of New York), I do not think you fully understand the issue.
Your first point is very true. Marsh was price fixing and going to a carrier to present a false quote is wrong. You can not argue that.
The second a third point seems to be the same issue. But, I do not consider the contracts that Marsh had with carriers to be the same as the “contingent” contract an independent agent may know. These contracts were in place to control were business went and would get paid more for renewing business at certain percentages compared to expiring. When you couple these contracts with the price fixing allegation you get into some serious moral issues.
I do not think it is fair to require any company to reveal amount of profit (commission) or profit sharing they receive, but I do find fault in asking a carrier to provide an inflated price to give the appearance of a competitive quote.
Don’t comments are well thought out and should really be forwarded to Spitzer.
I agree
Isn’t it incredibly interesting that Spitzers former boss and mentor is the newly appointed CEO at Marsh. I can think of several different story lines leading up to this development that would make for an interesting book. The question is, would it be fiction or non-fiction?!
In the end, it’s Spitzer that is contributing to the problem. During a volatile election, he has succeeded in causing the segment to tank in the market, trending the market down and creating uncertainty. In the end, the loss of capital due to this expanding witch hunt is counterproductive.
To me it would appear that Mr. Spitzer is more focused on getting the Greenberg family than actually correcting a wrong at M&M.
Am I the oly one that finds it very odd that once Mr. Greenberg resigned he wants to drop the legal charges against the company.
Also the one BIG point never brought out is was the “dummie quotes in an admitted or non-admitted company? It would have a major impact in placing coverage in NY.
Bit if all tha Mr Spitzer claims is totally true, why was the D.O.I. never brought in prosecute and why was M&M’s license never brought under review.
I can’t wait until next year to see what the political climate in this state will be like.
Look, if Marsh was accepting fees from clients based on the supposition that premiums quoted were net of commissions, and then accepting compensation from the carrier, and all the while misrepresenting the notion that they were shopping the market on behalf of the client, (ah, should I say bid-rigging), then they deserved harsh treatment. The mere fact that they, and others, have immediately suspended their “contingent” contracts smacks of untoward behavior. I can only hope that there aggregious behavior will not impact the legitimate profit sharing plans that are based on valuable notions such as field underwriting, loss ratios retention etc. I fear that there bad behavior will have a trickle down effect impacting honorable agents and agencies, and perhaps the jobs of unsuspecting CSR’S around the country. Carriers, if your listening, don’t use this as an excuse to further slash agency compensation under the pretense of consumer advocacy.
what do you suggest leave 60000 odd employees worldwide along with their family jobless and allow MMC to file for bankcurrapcy
There should be full disclosure of the commissions paid to insurance brokers.
Why should this be any different than disclosing (and negotiating) commissions in a real estate transaction?? If the industry is worried about the impact this may have on commission income, then I suggest that the players consider how they can differentiate themselves from their competitors by showing their clients how they add value to their insurance program (i.e., they may DESERVE a higher commission for the type and amount of work they are doing for their client, etc.).
Anyone in this industry at a marketing,underwriting or company management level has been pressured by the big brokers for years. I’ve watched it, felt it, lived it for 30 years. The industry turned a blind eye to the incestuous relationship between AIG and Marsh for many years and secretly kidded about Greenberg’s Glass Tower and passion to ultimately eliminate all other insurance companies until there is no one left but AIG & Marsh. Maybe Spitzer ought to look and the other “Big Ten” Brokers as well. They all play the game.
Spitzer may be making political hay out of all this, but one fact remains. Employees of AIG, Ace and Marsh broke the law, and enriched themselves by doing so.
In an industry where trust is such an important part of every relationship, this behavior is reprehensible. And if you think the lower level employees were acting without the knowledge of their superiors, I think you’re being a little naive. They should nail these bastards to the wall. Someone mentioned “What about the 60,000 employees?” I agree that’s an issue, but execs should not be allowed to get away with breaking the law just because they employ a lot of people.
It disgusts me that while the majority of the industry works very hard and ethically, and these bunch of scumbags line their pockets by taking advantage of their customers and the industry. And if this situation was the result of collusion between the Greenbergs, Spitzer should investigate that to determine if it’s true. I have a very easy time believeing that could be the case, and if it is, I don’t want them to get away with it. If they’re clean, then the minimal harm they endure is worth protecting the system. And if they’re not, I want them to go to jail. Not fines, JAIL.
Regarding the comment that brokers shouldn’t have to disclose their commissions, the writer misses one key point: We’re talking about brokers, not agents. Agents owe their fiduciary alliegance to the insurance company, so their commission is no one’s business but theirs and the insurance company. Brokers, however, owe their fiducuary duty to the INSURED, so they should have to disclose their commission to the insured. This allows the insured to know if the broker is acting in the insured’s best interests.
A little off the track about Kerry getting $50k from AIG that was somehow related to the big dig?