NAIC Reports Multi-State Regulatory Settlement with Marsh & McLennan Cos.

September 21, 2005

More than 30 state insurance regulators working collaboratively through the National Association of Insurance Commissioners (NAIC) on Wednesday announced a multi-state regulatory settlement with the nation’s largest insurance broker, Marsh & McLennan Cos. Inc. (Marsh).

The settlement agreement is designed to see that the extensive compensation and disclosure reforms are implemented by Marsh. The agreement adopts Marsh’s agreement made in January 2005 to pay its clients $850 million in restitution to resolve allegations of fraud and anti-competitive practices leveled by New York Attorney General Eliot Spitzer and New York State Insurance Superintendent Howard Mills.

“I am pleased that the Marsh settlement’s reforms will be enforced nationwide because of our agreement,” said Mike Kreidler, Washington Insurance Commissioner and chair of the NAIC subgroup that negotiated the agreement with Marsh. “Insurance consumers benefit from fairer treatment and greater disclosure. I commend the state insurance regulators who made this agreement to protect the insurance-buying public. It clearly helps move the entire commercial brokerage industry to a higher ethical standard.”

The business reforms Marsh adopted include limiting its brokerage compensation to a single fee or commission at the time of placement, banning contingent commissions, and requiring disclosure of all forms of compensation to the clients. The participating regulators will receive ongoing compliance reports from Marsh, have the authority to enforce reforms, and retain the ability to continue ongoing investigations with Marsh’s cooperation.

“The regulatory controls that are embodied in this global agreement are prudent and comprehensive,” said Diane Koken NAIC president and Pennsylvania Insurance Commissioner. “We recognize that some customers of Marsh may have reasons not to opt into the monetary settlement, and we can certainly understand that. However, expediently returning as much money to as many consumers as possible was an important consideration in endorsing this global settlement. We, of course, continue to work with other authorities to assure that the individuals at Marsh and other companies responsible for illegal, or otherwise inappropriate practices, are punished.”

Marsh clients had until Tuesday to join the settlement pool and release Marsh from further claims. The NAIC subgroup intentionally withheld its announcement until the deadline had passed to avoid the appearance of weighing in on whether eligible clients should opt-in.

Wednesday’s announcement represents the most recent development in the NAIC’s coordinated response through the Broker Activities Task Force, which initiated a three-pronged action plan designed to engage consumers, provide a solution, coordinate multi-state inquiries and leverage state expertise and resources:

Fraud Reporting: As an immediate means to empower consumers, the NAIC launched a centralized on-line fraud reporting system to complement similar reporting systems already in place in some states. This system allows for anonymous reporting of suspected fraudulent activities through the NAIC Web site at www.naic.org. Forty states, including the District of Columbia, are currently accepting reports of suspected fraud from both consumers and the industry through the new NAIC system. Additional states are expected to utilize the system in the next few months.

Full Inquiry and Coordination: The NAIC is coordinating states’ efforts to question significant domestic insurers and top brokers conducting business in their respective states. NAIC members are gathering facts in a standardized fashion, analyzing the issues, and determining next steps for regulatory intervention. Regulators are reviewing broker compensation practices across a broad spectrum of insurance products.

Greater Transparency on Broker Compensation: To help achieve a long-term solution, the NAIC adopted amendments to the NAIC’s Producer Licensing Model Act to address producers’ disclosure of compensation. Already enacted in five states and introduced in several others, these amendments are designed to provide consumers with the necessary information to understand potential conflicts of interest a producer may have because of the manner in which the insurance producer is compensated.

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