Keeping Up with Insurance Brokerage Investigations

Recent Key Developments in Ongoing Probes of Marsh, Other Brokers and Insurers

Marsh ‘Hopeful’ of Quick Settlement:
Marsh & McLennan (MMC) has been in constant contact and cooperation with New York Attorney General Eliot Spitzer and 26 other states investigating its insurance brokerage practices and while the ultimate objective is to settle all complaints, no timetable for a settlement with Spitzer or other officials has been set, according to the company. That clarification came after Blumberg News reported that Michael Cherkasky, MMC chief executive, said he is “hopeful” that a settlement of the lawsuit brought by Spitzer will get done by the end of this year. Barbara Perlmutter, spokeswoman for MMC, told Insurance Journal that while Marsh ultimately desires to settle all complaints, there is no guarantee this will be accomplished by year’s end. But MMC is cooperating with all officials, she said.

N.Y. Hearing on Marsh Rescheduled for Jan. 18: A public hearing on Marsh & McLennan Companies Inc. that was scheduled by the New York Department of Insurance for Nov. 23 was rescheduled to Jan. 18, 2005. Officials said the hearing was moved due to the ongoing joint investigation by the department and the New York attorney general’s office.

MMC Cuts Internal Executives from Board: Embattled insurance broker Marsh & McLennan announced that five members of its board of directors–all of them executives of the company–are leaving the board. The company’s board now consists of Michael G. Cherkasky, the company’s president and chief executive, and 10 “outside” members, the New York-based company said. Robert Erburu, lead director of MMC’s board, said the decision was “in keeping with the company’s commitment to adhering to corporate governance best practices.” Corporate governance advocates encourage companies to limit the number of corporate executives on their boards, favoring outsiders who are considered to have less self-interest in company decisions.

Calif. Files Suit Against ULR and Insurers: California Insurance Commissioner John Garamendi announced a lawsuit against Universal Life Resources of San Diego and four major insurers accused of hiding millions of dollars in secret commissions. Garamendi also disclosed that a settlement had been reached with ULR requiring it to end these practices immediately. The suit, filed in California Superior Court in San Diego, names MetLife Inc., Cigna Corporation, Prudential Financial Inc., and UnumProvident Corporation as defendants. They are accused of collaborating with ULR to carry out schemes that caused financial harm to California consumers.

Regulators Reveal Model Disclosure Act: The National Association of Insurance Commissioners (NAIC) released draft model legislation requiring brokers and other producers to disclose their compensation. The draft legislation would amend the NAIC’s current Producer Licensing Model Act. Brokers would be required to first obtain the insured’s written consent before receiving compensation from the insurer for the same transaction. In addition, brokers would be required to disclose the amount of compensation from the insurer, including any contingent compensation. In those cases where the contingent commission is not known, brokers would be required to provide a reasonable estimate. In addition, every insurance producer would have to disclose to customers: that the producer will receive compensation from the insurer and may receive additional compensation based upon other factors, such as premium volume or claims experience. State insurance regulators have vowed to adopt model disclosure language by the end of the year.

U.S. Senate Panel Holds Hearing: Marking the first formal congressional inquiry since allegations of abuse in the commercial insurance brokerage industry emerged, U.S. Senator Peter G. Fitzgerald (R-Ill.) chaired a Senate subcommittee oversight hearing of insurance brokerage practices on Nov. 16. Fitzgerald called the hearing in his capacity as chairman of the Governmental Affairs Subcommittee on Financial Management, the Budget and International Security. The subcommittee heard from Spitzer, Connecticut Attorney General Richard Blumenthal, Garamendi, New York Insurance Superintendent Gregory Serio, and leading industry and association groups.

Pair of Zurich Underwriters Plead Guilty: Spitzer revealed that two employees from a third insurance company–Zurich American Insurance Company–have pleaded guilty to criminal charges in connection with a bid rigging scheme. According to the Associated Press, the two senior underwriters were John Keenan and Edward Coughlin, who worked in the specialties excess casualty unit at Zurich and dealt exclusively with Marsh Global Broking.

Spitzer Sues ULR: Spitzer charged in a civil suit in the state Supreme Court in Manhattan that Universal Life Resources of San Diego, which brokers life, accident and disability policies for leading U.S. companies, pocketed millions of dollars a year in hidden payments from insurers and from charges on clients’ unsuspecting workers. Spitzer said the ULR case “manifests the same conflicts of interests and gaming of the system” that he alleges in his MMC suit. The civil suit seeks to end the company’s so-called “secret agreements” with insurers, the disgorgement of improper payments and restitution for injured parties. Spitzer’s suit mentions Metlife, Prudential and Unum Provident as among the companies writing policies brokered by ULR.

The Hartford Releases Pair of Employees: The Hartford announced that two of its employees have been dismissed after the company concluded that they were not fully cooperating with the investigation by New York’s attorney general. According to the company, the pair worked for The Hartford’s P/C operations in Los Angeles.

Lockyer Subpoenas Safeco, The Hartford: California Attorney General Bill Lockyer subpoenaed Seattle-based P/C insurer Safeco Corp. in connection with his investigation into bid rigging and price fixing in the insurance industry, according to Reuters. Safeco said it would cooperate with the subpoena, which was received on Nov. 23. Hartford Financial Services Group also received a subpoena from Lockyer.