March & McLennan Comments on Incentive Fees

[lil-petunia]

Forbes. com - M&M complaining about loss of profits

"The company at the center of a probe into insurance brokerage fees says it took in more than $1.2 billion in incentive payments over the past 18 months and that its decision to stop using such fees will reduce operating income.

- - -

"The fees, which are over and above ordinary commissions, have been paid by insurance companies to brokers, mainly for steering profitable clients the insurer's way. New York Attorney General Eliot Spitzer sued Marsh & McLennan last week over the fees as well as for bid rigging, and said the investigation extends to several large insurers."


Oh, I see, the greedy bastards screw the clients by false bidding, driving up their own percentage commission, and now they are complaining that they will lose money by playing it honest for a change.

Spitzer, go have fun. Knock yourself out with these creeps.

[barb162]

1. spitzer for new sec chairman

[lil-petunia]

2. He just expanded the investigation from prop/cas to life/health insurers

If the market falls today, it is because the insurance companies (together with the brokerages which pretty much control insurance rates in this country), just got caught and will be suffering MAJOR LEAGUE fines, sanctions, perhaps criminal indictments.

Unless you have played in this field, you cannot imagine just how big these monsters are. And just how big this scandal is. When people talk about the "service" economy, I would estimate that 40% is somehow related to these targets.

To be found out - bid rigging, collusion, corruption, and more, - I suspect that some very unhappy customers will be considering some really nasty civil actions in the near future. Imagine running GM, and finding out that your broker, Marsh and your insurer AIG, were screwing you on your Product Liability coverage by rigging the bidding. That meant you paid more, you got less, and your broker made huge commissions.

MM has an unconscionable breach of fiduciary duty to the client. As does the coconspirator, insurer.

Consider it the biggest scandal to hit the financial sector, bigger than Enron.

[Canadian_moderate]

3. As a person

With a fair amount of personal finance at stake in this, I hope this cleans up the business and makes commission/compensation more transparent.

Marsh is the biggest, so it's the main target, but this is unfortunately the way many brokerages are compensated. The fact that these agreements are in places results in unethical business activities. If you think this is only Marsh, you're sadly mistaken.

That said, I am glad it is being addressed.

[barb162]

4. I agree, I hope he goes after Aon, Willis and probably several others

I am wondering why he didn't go after the insurers

[lil-petunia]

5. time is a four letter word. And elliot has his hands full with this one.

But watch them fall into line to avoid truly large sanctions when the time comes.


be still my heart.

[burythehatchet]

8. sound like you toiled in "the bidness" as well

[barb162]

12. Let me just say the ethical problems in the bidness" are so

severe I would like to clean house. And I mean from one side to the other, inside out, upside down....

[burythehatchet]

14. what, in your opinion, are those problems?

[barb162]

18. If I answered that I bet it would take me a few days nonstop

I actually started writing some examples and then erased them for various reasons.

But let me just comment that the large agents/brokers are representing only themselves, imho, when they should be representing their clients.

There are terrible conflicts of interest written right in the state insurance laws. The wolves are guarding the henhouse, they really are. All agents are supposed to be protecting their client's interests and the Spitzer story clearly shows the wolf aspect of the agents, especially the large agents. The problem is the same crap goes on with the medium-size agencies as well, not all of them, but it is happening there too.

[burythehatchet]

20. the power

of DU is the opportunity to piece together information. PM me, if you would

related thread: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=104&topic_id=2511129&mesg_id=2511129

[Canadian_moderate]

9. He did

They went after at least two (ACE and AIG, both headed by the Greenberg clan) and more will probably follow.

This is pretty much standard practice in the insurance industry (both P&C and Life and Health). Most companies pay commission overrides to they biggest producers that meet target and pretty much all brokers collect these bonus commissions.

What will probably happen is that they will be eliminated as a form of revenue for the brokers. Since it currently makes up a big portion of the bottom-line earnings, the brokers will probably end up receiving a different scale of standard commissions to make up a lost revenue. The good thing is that reform will discourage unethical practices and it will make the compensation paid to brokers more transparent.

[barb162]

10. I was talking about the 3 biggest brokers (Willis, Aon, and Marsh)

re the "side" deals.

My understanding is he has not yet gone "after" the insurers, that is, AIG, Ace, etc. It takes two sides, at least, to make a deal and the insurers were the other side of the deal with the broker(s). He has not touched the insurers YET.

Not that I want to whine or anything but if the 3 Greenburgs all lose their jobs, it wouldn't bother me a bit. When you look at these 3 guys doing the primary business (like AIG) and the excess (like ACE) and the broker (Marsh) business, there is a lot of "space" for dirty stuff, not that I, moi, would EVER in a million years suggest such a dastardly thing.

[burythehatchet]

15. I think the insurers are going to be treated less harshly for two reasons

1. they are not the principal party, the brokers were the ones looking to fatten their margins by warehousing business.
2. punishing the insurers now would jeopardize the financial integrity of the policies they have issued.
On the other hand, the brokers value is not entirely tangible and certainly not an accurate reflection of services rendered.

[barb162]

19. AIG has money to burn (and how often do they pay claims anyway)

"punishing the insurers now would jeopardize the financial integrity of the policies they have issued."

Beside that they NEVER compute their bills correctly as they can't follow their own dumbass forms. In addition, they have embedded mistakes in their billing formulae

[Rockholm]

6. Financially in the same boat, Canadian Moderate.

Marsh gets "caught" but "everyone" does it. It really sucks. Think about it. Everyone gets a kickback in one way or another to tout a product/service, etc.

[Canadian_moderate]

11. At least I can honestly say

that financial incentives have never affected my decision in finding the best solution for my clients. Unfortunately, not all people are alike and some are more driven by greed than others.

Actually, commission overrides are pretty much a non-issue in my line of work so everything is above board and transparent.

I really do not understand how these arrangements have been allowed to go on for so long. I really do think it because everyone in that type of business was doing it.

[barb162]

13. "uberrimae fidei"

remember that? Is there anyone in the damn business anymore who subscribes to it? Anyone who know what it even means? All I have seen is unethical behavior, outright lying, etc.

[Canadian_moderate]

16. I wouldn't necessarily agree with that

Most people still act in good faith. It's the few rats that tarnish the entire industry with outright lies and deceptions.

[barb162]

17. I think the bigger the firm, the the worse the rats

I have seen where insureds were paying on a fee basis and the brokers were also taking HUGE commissions (I actually saw 30% commissions on some really easy renewal business, stuff that took about 5 minutes to renew) without telling the insured and that doesn't even take into account the back alley deals that Spitzer is working on.

But on the little stuff, it happens there too. I helped a friend get a license revoked on a scumbag life agent who pulled a switch on her. I was able to get a lot of the money back for her but not all.The "regular" people don't even know how to start wending their way around the state insurance commissioners and most of the people working at the state are ex-insurer cronies in any case. They seem unwilling to help the little guy unless it is happening a lot by one insurer, like the Prudential crap of several years ago and unless there is a lot of publicity. Then they will get off their lazy asses and only then.

The industry doesn't police itself (not that that makes it different from any other). It seems to me that something that would have been scandalous years ago...now people don't even think twice about it.

[Rockholm]

7. Lil, it's Marsh, not March. n/t

[barb162]

21. Spitzer focuses probe on Aon

By James P. Miller and Leon Lazaroff
Tribune staff reporters
Published October 20, 2004

Aon Corp.'s troubles deepened Tuesday, as regulators investigating the insurance brokerage industry signaled they now have the Chicago company in their sights.

Already, the conflict-of-interest storm that broke last week over the entire brokerage sector has called into question whether Aon will be able to continue raking in about $200 million a year in lucrative contingency fees--payments that contributed an estimated nearly 20 percent of the company's total earnings.

But now New York Atty. Gen. Eliot Spitzer is focusing on Aon to determine whether it improperly tried to drum up business for its reinsurance brokerage business by arranging questionable quid pro quos with insurance providers.

And Spitzer is apparently unhappy with the level of cooperation from Aon. "They've very much been dragging their feet on the quantity and quality of their cooperation with us," said a person close to Spitzer's office.
snip
Copyright © 2004, Chicago Tribune

(TEE-HEE, B.)