Not all agents and not all contingencies are bad, I’m glad Spitzer finally said it. As far as Garamendi is concerned, he’s just a putz, as was his predecessor. Its a shame that the Insurance Commissioner in CA doesnt understand insurance. I’m sure he is intimately familiar with the pecking order of state politics though. I’m sure you will see his ugly picture on a ballot really soon. Good luck.
Well, if Martha had just been willing to accept some degree of responsibility instead of fighting on all levels (I’m not sure if she’s done with her appeals) then she wouldn’t have been spanked quite so resoundingly. She also wouldn’t have lost value in her stock quite so badly.
Never steal anything small. Too easy to be caught and nailed, and just look to Ken Lay for behavior guidelines.
What a farce! Spitzer got his headlines & lots of publicity, Marsh gets slapped on the bank account and now this is going to go away? Does anyone really believe that
Marsh and their ilk will not be back doing the same old game in 24 months? Triple the fine and send some of these people to jail and maybe some lessons will be learned.
So how many hardworking & ethical employees down the food chain are going to be without jobs to make up for that $850 million? And what about those who get to keep their jobs…with increased workloads and longer workdays? The little guy once again suffers because of the GREED of the wealthy few. Fine those individuals big time – get them where it really hurts – in their pockets!
I agree that if ‘bid rigging’ is a crime, where’s the punishment? Let’s say I robbed a bank once a year, and get caught my third year. Based on this system of justice, all I’d have to do is give back my third year’s take and be done with it!!
As far as Martha is concerned. She got a bad rap for not playing footsie like the boys. She got sentenced to jail for lying about a crime for which she was never charged! Go figure.
Come on, everyones missing the point. No question that bid rigging is illegal, it should be punished to the full extent of the law, whether this has occured or not remains to be seen. Jeff ‘s gone, a number of Marsh senior people are gone, unfortunately, a considerable number of Marsh employees have lost their job, through no fault of their own, a lot of people lost on this deal. Marsh is not going to be back doing this – period.
But the bigger question is how the hell does any prospective client of Marsh or x client come to prove ecomonic loss, to gain a portion of this settlement .
The majority of this client base are not unknowledgeable insurance clients. A great many are handled with informed risk managers. The question of the day has to be, was the specific client unhappy with the outcome of their renewal negotiations, when most had familiarity with the marketplace. Given that assumption, and the time and place of negotiation in a marketplace with specific underwriting philosophy, how do you prove your loss? The mere fact that two or three carriers were used to provide whatever quotations to prove or disprove a particular premium base, did the final outcome become a loss potential under this scenario, irrespective of the fact that Marsh did rig the deal, but to whose benefit? Marsh – did the insured physically suffer economic loss.
I’d love to be the advocate reviewing proof’s of loss on this deal.
Cheers to you! Quackamendi probably doesn’t know anything about farming either! I, for one, sure don’t look forward to seeing his picture on the ballot. Oh, wait….we can use them to paper rest room walls!! ALL RIIGGHHHTTT!!!
Let me see if I understand this issue. Contingent commissions, which are paid out to brokers in a profit sharing scheme, sponsored by an insurer as a result of the broker placing profitable accounts with the carrier, are deemed to be evidence of a breach of fiduciary responsibility on the part of the broker, simply because the commissions represent monies that might have been used to reduce the cost of risk for the insured?
Using that logic, then all profit sharing arrangements in the economy should be banned and such profits returned to the consumer.
Further, placing a greater number of accounts with a carrier in order to develop the profit ratio needed to develop contingent commissions is considered to be bid rigging?
I would not want to be one to point a finger, but this sounds a lot like politicians sponsoring legislation giving minority voters special status when applying for government contracts.
So, this issue, which has harmed hundreds of downline employees at Marsh, and will have an impact on the profitability of thousands of small and mid-sized insurance brokerages/agencies, is simply an attempt on the part of an aggressive politician seeking to gain national recognition?
What’s next? Will an enterprising attorney take on Wall Street for brokering stocks, which are, after all, simply profit sharing schemes developed by corporations seeking to increase capital and revenue streams?
The question of company incentives and company pressures for agents (or brokers, I guess) to place business with them, regardless of the implications to insureds is a thorny one. I chaired a panel discussion on ethics once that addressed some of these questions. A panel of three agents and three company branch managers was asked this question:
Suppose you represent company A and have not given them much business lately for any of a number of reasons (price, servce, whatever). They then come to you and say that if you don’t give them $xx,xxx of new business in the next 12 months, they will terminate your agency.
You know that you already have some insureds in this company that you will not be able to replace (due to age, experience, etc.) so if you lose company A, many insureds will get a raw deal.
A prospect comes to you and asks you to save him money on his insurance. You can save him money by placing him in company A, but you could save him even more if you place him in either of 2 of your other companies, B or C.
Are you serving his best interests by not telling him about B or C? Are you servig your other insureds by placing him in B or C?
The same thing goes for placing a sizable account with a company in order to qualify for profit sharing , or MORE profit sharing. The insured doesn’t always get the best deal, but all the insurance company cares about is thier own bottom line.
In fact, in my 30 years in this business, it now seems, more than ever, that all insurance companies care about is the top executives, and the company’s sort-term bottom line.
Excellent points, Larry. Apparently MMC went out and got quotes from B and C and asked that they be “increased” to the level of A so that there wouldn’t be a measurable difference.
Aside from pricing, differences in coverages between A, B and C can also play a factor in which gets represented to the buyer. So does claims handling; many see one particularly large carrier as being slower in paying claims than other markets, so how does that get across to the buyer?
Do brokers and agents have an obligation to the buyers to fully outline what their complete compensation package truly is, whether commissions, contingency fees, etc? How do you explain to a buyer that the contingency checks may never get paid in the event of a loss large enough to wipe out the profitability of their book with the carrier?
Maybe the phrase “profit sharing” is what tiggered this review; it sounds like the broker or agent shares in profits of the insurer, without directly benefitting the client.
Also, I recall an “opportunity” at one mid-size NYC broker several years ago. The firm was approached by a carrier (now a part of another thanks to a late-day, pre-collapse acquisition) to participate in a special offshore insurance facility. The broker was invited to join with perhaps ten others to set up a ‘paper’ insurance company, who would be fully reinsured by the carrier.
Into this new company, each broker was encouraged to send their best (profitable) accounts. With lower overhead, each broker would share in the profitability of the new company without any up-front investment requirement. It also provided annual meetings in Bermuda; who could pass up THAT?
I’m not sure if this ‘structure’ survived the acquisition, but if anything smelled of collusion, this deal certainly did. But I am certain that enough brokers junped at the opportunity.
In the end I agree with your final comment. Companies – whether in our financial services trade or not – care less about their employees than their shareholders or their rep on The Street.
Would be great if we all had the abilities to run our own shops, or group together enough of the ‘unfortunates’ into another powerhouse. Firms that distance themselves from the questionable prectices will do well – especially if Spitzer et al don’t find anything beyond smelling the blood in the water.
I just got back from a day of lobbying in Albany with IIAA. Of course the big issue was if, or how, Spitzer was going to try to paint all company bonus arrangements with the same brush he used on Marsh.
One very intersting item popped up in our discussions. Marsh, and a few other mega brokers, are actually larger than many insurance companies. With their enormous size, these maga brokers could do almost anything they want in their relationships with carriers.
It was said that there had been a situation where some of the mega brokers had been involved in, if not had been totally behind, the creation of some offshore reinsurers. These reinsurers then put pressure on the carriers that the mega brokers were using. Does THAT sound like undue pressue and unfair competition?
From coast to coast the Marsh-bomb fallout has covered the entire insurance industry in a dark cloud of toxic opinions. Worse yet, that toxic cloud lingers as it appears that Marsh will evade disipline by paying off its admitted crimes with its tainted cash and a crafty non-admission of guilt clause.
For the rest of the insurance industry? Simply glance at the N.A.I.C. resident and non resident agency licensing renewal applications. Upon review of the basic ‘Background Questions’ one finds Marsh’s already admitted conduct raising serious concerns as to qualifying for a renewed license to conduct lawful insurance business in the several United States.
However, shop talk about this issue seems to end with a number of good, honest insurance professionals shaking their heads because someone laments that Marsh is “too big” to have its license renewal application rejected or revoked by any state. Too big for ethics? Too big to be accountable? Too big to have integrity? Too big to obey laws?
In that same light however, when talk about every other agency turns to having to meet its obligations to integrity, ethics and compliance, it would be curtains for that agency’s license if that agency pulled a fraction of the stunts Marsh has pulled.
Small wonder the insurance industry is being hammered into pieces with bad publicity and press.
Then, to compound the insanity of all of this the government is poised to punish (for all practical purposes) the ‘smaller’ agencies by creating more hoops to jump through while the Marshes of the insurance industry dream up new and improved ways to fly under the hoop.
The fish stinks from the head down! The question then becomes: How much did Spitzer know and when did he know it? I suspect he knows more and for much longer than this. How convenient for him to make waves then announce he’s running for governor. It’s too coincidental.
I own a small brokerage. Whether I admitted what Marsh did, or got found guilty, I’d be selling something other than insurance because I would have my license pulled and my business closed. Where do I get a free out of jail card?
I thought that was how it worked these days. Many politicians see laws being broken and people taken advantage of on a regular basis. They just do nothing about it until it suits their needs, whether it is used when running for another office or calling in other favors with colleagues or businesses. The unfortunate thing is that many of us now almost expect corruption to happen, its no longer a rare occurrence.
An agent for 40 years. Never rigged a bid and always did the very best I could for my clients.
Over the years reduced my income plenty of times by securing a better quote for my customer.Many of them are very aware of our effort on their behalf.
Those that did wrong should be punished and those that do right appreciated.
Hey Spitzey, what about going after your chumms who market title insurance? Talk about no disclosure! A fee for the search billed both to the buyer and the title company, a commission from the title carrier of choice – you know, the one that wines and dines the attorney to prefer them over the rest, and gives them the heavy perks, and pays the 60% commission.
The client isn’t shown a choice, usually has no idea about title insurance, has no idea what the commission is, and receives a copy of the policy to stuff in the drawer with the rest of the closing crap.
You cannot leave out title insurance from the equation.
Where is the punishment for bid rigging. This is bull!
Spitzer admits all contingent commission programs are bad for the consumer. Yeah! Like in personal lines? Please tell Mr. Garamendi.
Oooooops! I meant “Spitzer admits all contingent commissions ‘aren’t’ bad.” Sorry! bj
Martha’s in jail for squeezing $250,000 and lying to the fed. Who’s doing sentences for MARSH????
Not all agents and not all contingencies are bad, I’m glad Spitzer finally said it. As far as Garamendi is concerned, he’s just a putz, as was his predecessor. Its a shame that the Insurance Commissioner in CA doesnt understand insurance. I’m sure he is intimately familiar with the pecking order of state politics though. I’m sure you will see his ugly picture on a ballot really soon. Good luck.
Well, if Martha had just been willing to accept some degree of responsibility instead of fighting on all levels (I’m not sure if she’s done with her appeals) then she wouldn’t have been spanked quite so resoundingly. She also wouldn’t have lost value in her stock quite so badly.
Never steal anything small. Too easy to be caught and nailed, and just look to Ken Lay for behavior guidelines.
What a farce! Spitzer got his headlines & lots of publicity, Marsh gets slapped on the bank account and now this is going to go away? Does anyone really believe that
Marsh and their ilk will not be back doing the same old game in 24 months? Triple the fine and send some of these people to jail and maybe some lessons will be learned.
So how many hardworking & ethical employees down the food chain are going to be without jobs to make up for that $850 million? And what about those who get to keep their jobs…with increased workloads and longer workdays? The little guy once again suffers because of the GREED of the wealthy few. Fine those individuals big time – get them where it really hurts – in their pockets!
I agree that if ‘bid rigging’ is a crime, where’s the punishment? Let’s say I robbed a bank once a year, and get caught my third year. Based on this system of justice, all I’d have to do is give back my third year’s take and be done with it!!
As far as Martha is concerned. She got a bad rap for not playing footsie like the boys. She got sentenced to jail for lying about a crime for which she was never charged! Go figure.
Come on, everyones missing the point. No question that bid rigging is illegal, it should be punished to the full extent of the law, whether this has occured or not remains to be seen. Jeff ‘s gone, a number of Marsh senior people are gone, unfortunately, a considerable number of Marsh employees have lost their job, through no fault of their own, a lot of people lost on this deal. Marsh is not going to be back doing this – period.
But the bigger question is how the hell does any prospective client of Marsh or x client come to prove ecomonic loss, to gain a portion of this settlement .
The majority of this client base are not unknowledgeable insurance clients. A great many are handled with informed risk managers. The question of the day has to be, was the specific client unhappy with the outcome of their renewal negotiations, when most had familiarity with the marketplace. Given that assumption, and the time and place of negotiation in a marketplace with specific underwriting philosophy, how do you prove your loss? The mere fact that two or three carriers were used to provide whatever quotations to prove or disprove a particular premium base, did the final outcome become a loss potential under this scenario, irrespective of the fact that Marsh did rig the deal, but to whose benefit? Marsh – did the insured physically suffer economic loss.
I’d love to be the advocate reviewing proof’s of loss on this deal.
Be well all.
Cheers to you! Quackamendi probably doesn’t know anything about farming either! I, for one, sure don’t look forward to seeing his picture on the ballot. Oh, wait….we can use them to paper rest room walls!! ALL RIIGGHHHTTT!!!
Let me see if I understand this issue. Contingent commissions, which are paid out to brokers in a profit sharing scheme, sponsored by an insurer as a result of the broker placing profitable accounts with the carrier, are deemed to be evidence of a breach of fiduciary responsibility on the part of the broker, simply because the commissions represent monies that might have been used to reduce the cost of risk for the insured?
Using that logic, then all profit sharing arrangements in the economy should be banned and such profits returned to the consumer.
Further, placing a greater number of accounts with a carrier in order to develop the profit ratio needed to develop contingent commissions is considered to be bid rigging?
I would not want to be one to point a finger, but this sounds a lot like politicians sponsoring legislation giving minority voters special status when applying for government contracts.
So, this issue, which has harmed hundreds of downline employees at Marsh, and will have an impact on the profitability of thousands of small and mid-sized insurance brokerages/agencies, is simply an attempt on the part of an aggressive politician seeking to gain national recognition?
What’s next? Will an enterprising attorney take on Wall Street for brokering stocks, which are, after all, simply profit sharing schemes developed by corporations seeking to increase capital and revenue streams?
Who said Marx is dead?
The question of company incentives and company pressures for agents (or brokers, I guess) to place business with them, regardless of the implications to insureds is a thorny one. I chaired a panel discussion on ethics once that addressed some of these questions. A panel of three agents and three company branch managers was asked this question:
Suppose you represent company A and have not given them much business lately for any of a number of reasons (price, servce, whatever). They then come to you and say that if you don’t give them $xx,xxx of new business in the next 12 months, they will terminate your agency.
You know that you already have some insureds in this company that you will not be able to replace (due to age, experience, etc.) so if you lose company A, many insureds will get a raw deal.
A prospect comes to you and asks you to save him money on his insurance. You can save him money by placing him in company A, but you could save him even more if you place him in either of 2 of your other companies, B or C.
Are you serving his best interests by not telling him about B or C? Are you servig your other insureds by placing him in B or C?
The same thing goes for placing a sizable account with a company in order to qualify for profit sharing , or MORE profit sharing. The insured doesn’t always get the best deal, but all the insurance company cares about is thier own bottom line.
In fact, in my 30 years in this business, it now seems, more than ever, that all insurance companies care about is the top executives, and the company’s sort-term bottom line.
Excellent points, Larry. Apparently MMC went out and got quotes from B and C and asked that they be “increased” to the level of A so that there wouldn’t be a measurable difference.
Aside from pricing, differences in coverages between A, B and C can also play a factor in which gets represented to the buyer. So does claims handling; many see one particularly large carrier as being slower in paying claims than other markets, so how does that get across to the buyer?
Do brokers and agents have an obligation to the buyers to fully outline what their complete compensation package truly is, whether commissions, contingency fees, etc? How do you explain to a buyer that the contingency checks may never get paid in the event of a loss large enough to wipe out the profitability of their book with the carrier?
Maybe the phrase “profit sharing” is what tiggered this review; it sounds like the broker or agent shares in profits of the insurer, without directly benefitting the client.
Also, I recall an “opportunity” at one mid-size NYC broker several years ago. The firm was approached by a carrier (now a part of another thanks to a late-day, pre-collapse acquisition) to participate in a special offshore insurance facility. The broker was invited to join with perhaps ten others to set up a ‘paper’ insurance company, who would be fully reinsured by the carrier.
Into this new company, each broker was encouraged to send their best (profitable) accounts. With lower overhead, each broker would share in the profitability of the new company without any up-front investment requirement. It also provided annual meetings in Bermuda; who could pass up THAT?
I’m not sure if this ‘structure’ survived the acquisition, but if anything smelled of collusion, this deal certainly did. But I am certain that enough brokers junped at the opportunity.
In the end I agree with your final comment. Companies – whether in our financial services trade or not – care less about their employees than their shareholders or their rep on The Street.
Would be great if we all had the abilities to run our own shops, or group together enough of the ‘unfortunates’ into another powerhouse. Firms that distance themselves from the questionable prectices will do well – especially if Spitzer et al don’t find anything beyond smelling the blood in the water.
And who is to say the “Risk Managers” were not in on the deal with the brokers?
Don’t forget bird cages when using up that paper.
I just got back from a day of lobbying in Albany with IIAA. Of course the big issue was if, or how, Spitzer was going to try to paint all company bonus arrangements with the same brush he used on Marsh.
One very intersting item popped up in our discussions. Marsh, and a few other mega brokers, are actually larger than many insurance companies. With their enormous size, these maga brokers could do almost anything they want in their relationships with carriers.
It was said that there had been a situation where some of the mega brokers had been involved in, if not had been totally behind, the creation of some offshore reinsurers. These reinsurers then put pressure on the carriers that the mega brokers were using. Does THAT sound like undue pressue and unfair competition?
From coast to coast the Marsh-bomb fallout has covered the entire insurance industry in a dark cloud of toxic opinions. Worse yet, that toxic cloud lingers as it appears that Marsh will evade disipline by paying off its admitted crimes with its tainted cash and a crafty non-admission of guilt clause.
For the rest of the insurance industry? Simply glance at the N.A.I.C. resident and non resident agency licensing renewal applications. Upon review of the basic ‘Background Questions’ one finds Marsh’s already admitted conduct raising serious concerns as to qualifying for a renewed license to conduct lawful insurance business in the several United States.
However, shop talk about this issue seems to end with a number of good, honest insurance professionals shaking their heads because someone laments that Marsh is “too big” to have its license renewal application rejected or revoked by any state. Too big for ethics? Too big to be accountable? Too big to have integrity? Too big to obey laws?
In that same light however, when talk about every other agency turns to having to meet its obligations to integrity, ethics and compliance, it would be curtains for that agency’s license if that agency pulled a fraction of the stunts Marsh has pulled.
Small wonder the insurance industry is being hammered into pieces with bad publicity and press.
Then, to compound the insanity of all of this the government is poised to punish (for all practical purposes) the ‘smaller’ agencies by creating more hoops to jump through while the Marshes of the insurance industry dream up new and improved ways to fly under the hoop.
Agree completely with licensingdude
The fish stinks from the head down! The question then becomes: How much did Spitzer know and when did he know it? I suspect he knows more and for much longer than this. How convenient for him to make waves then announce he’s running for governor. It’s too coincidental.
I own a small brokerage. Whether I admitted what Marsh did, or got found guilty, I’d be selling something other than insurance because I would have my license pulled and my business closed. Where do I get a free out of jail card?
I thought that was how it worked these days. Many politicians see laws being broken and people taken advantage of on a regular basis. They just do nothing about it until it suits their needs, whether it is used when running for another office or calling in other favors with colleagues or businesses. The unfortunate thing is that many of us now almost expect corruption to happen, its no longer a rare occurrence.
An agent for 40 years. Never rigged a bid and always did the very best I could for my clients.
Over the years reduced my income plenty of times by securing a better quote for my customer.Many of them are very aware of our effort on their behalf.
Those that did wrong should be punished and those that do right appreciated.
HEAR! HEAR!!
Hey Spitzey, what about going after your chumms who market title insurance? Talk about no disclosure! A fee for the search billed both to the buyer and the title company, a commission from the title carrier of choice – you know, the one that wines and dines the attorney to prefer them over the rest, and gives them the heavy perks, and pays the 60% commission.
The client isn’t shown a choice, usually has no idea about title insurance, has no idea what the commission is, and receives a copy of the policy to stuff in the drawer with the rest of the closing crap.
You cannot leave out title insurance from the equation.
DAMN STRAIGHT!!!