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Marsh Said to Put Profit Over Clients

Times Staff Writer

Insurance brokers in the Los Angeles office of Marsh & McLennan Cos. said they were ordered late last year to temporarily stop selling personal coverage lines from one insurer because doing so could reduce commission payments to Marsh.

The brokers, whose job is to find the best policies for clients among competing insurance firms, said they were outraged by the directive because of the potential harm to customers who would be forced into inferior, or more expensive, coverage.

“I couldn’t believe it,” one broker said. “The whole department couldn’t believe it. We kept saying, ‘If this ever gets out, [the company would] be in so much trouble.’ ”

Marsh is at the center of the scandal that has engulfed the U.S. insurance industry. New York Atty. Gen. Eliot Spitzer sued Marsh on Oct. 14, charging that its brokerage unit cheated corporate customers by rigging bids and receiving kickbacks from insurance companies.

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Spitzer and other regulators now are investigating whether any similar practices hurt individuals buying personal coverage.

A spokesman for the New York-based company declined to comment Friday on practices in the Los Angeles office. Media reports early Friday said that Jeffrey W. Greenberg, Marsh’s chief executive, was expected to resign in the coming days, prompting Marsh’s shares to jump $1.94, or 7.8%, to $26.79 on the New York Stock Exchange.

The Los Angeles brokers, who spoke on condition of anonymity, work in Marsh’s Private Client Services group, which handles insurance coverage for wealthy individuals.

The brokers said that they were told in early December to stop writing home, auto and other personal policies in California, Florida and Hawaii with American International Group Inc., a giant insurance company that was named, but not charged, in Spitzer’s complaint.

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The brokers said they were told that Marsh did not want to exceed an annual cap on policies with AIG in states with a high risk of earthquakes, hurricanes or other costly disasters. The employees said they were told that exceeding the limit could affect contingency commissions that Marsh expected to receive. The commissions are payments that insurance brokers receive from insurers for placing large amounts of business with them.

The brokers said they were instructed not to tell AIG. An AIG spokesman declined to comment.

The order to the Marsh brokers came from James Merriman, who at the time headed the Private Client Services group for the Los Angeles office, employees said. He has since been promoted to Western regional manager for the group.

The brokers said they believed Merriman was acting on orders from his bosses. Merriman declined to comment, a Marsh spokesman said.

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The Marsh brokers said they were told they could resume writing AIG policies in January but were required to get special management approval to write new policies in December.

“They said, the amount of money we will lose from the contingency will outweigh any benefits we receive” by writing additional AIG coverage, one employee said.

The order affected new policies, employees said. Brokers said they could continue to renew policies with AIG.

The brokers said upper management appeared to be most interested in maximizing Marsh’s own profit. But the brokers said they and their colleagues always worked hard to get the best deals for clients and were troubled that the order to avoid AIG could hurt customers. “We were all really upset about it,” one employee said.

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Prohibiting employees from acting in the best interests of clients could violate the law, said David Wood, an attorney in Los Angeles who represents companies in disputes with brokers and insurers.

“Anything a broker does to promote its financial best interests to the detriment of policyholders is unethical, is a breach of the broker’s standard of care and may be a violation of law or regulation,” Wood said.

Critics say contingency commissions pose a conflict of interest because they encourage brokers to steer business to insurers that offer the highest payments, not those that give the best deals to clients.


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