Marsh Probes Claims by L.A. Brokers

Marsh & McLennan Cos. has launched an internal investigation into a report that brokers in its Los Angeles office were ordered to stop selling personal coverage lines from one insurer because doing so would have reduced Marsh’s commissions.

Michael G. Cherkasky, the new chief executive of the giant insurance brokerage, said initial indications from the probe were “that a couple of people weren’t doing what they needed to do” but that the problems were “very, very narrow in scope.”

Asked in a telephone interview Wednesday whether any employees had been suspended or disciplined, Cherkasky said, “Not yet.”

He said Marsh dispatched executives to Los Angeles after The Times published a story about the matter Saturday.

“We had someone in L.A. on Sunday interviewing people to make sure we understood what the issues were so we could swiftly fix any problem,” he said.

The Times story quoted brokers in Marsh’s Private Client Services Group, which handles insurance coverage for wealthy individuals, as saying that they had been instructed late last year to stop writing home, auto and other personal policies in California, Florida and Hawaii with American International Group Inc.

The brokers, who spoke on condition of anonymity, said they were told that Marsh didn’t want to exceed an annual cap on policies with AIG in states with a high risk of earthquakes, hurricanes or other costly disasters.

Exceeding the cap could reduce “contingent commissions” that Marsh expected to receive from AIG, the brokers were told. The commissions are special payments that brokers receive from insurers for placing large amounts of business with them.

On Monday, a top Marsh executive from New York met with the private client group, according to a broker in the Los Angeles office. Interviews with brokers were scheduled to take place today, the employee said.

Members of the unit -- who were outraged that they were restricted from writing policies with AIG -- were pleased that the company’s leadership appeared to be taking action to address the issue, the broker said.

New York Atty. Gen. Eliot Spitzer filed a civil fraud lawsuit against Marsh on Oct. 14 in which he described contingent commissions as improper kickbacks that tempt brokers to ignore their duty to obtain the best coverage for clients at the lowest price.

Marsh and top brokerage rivals Aon Corp. and Willis Group Holdings Ltd. all have said they would stop accepting contingent commissions.

Cherkasky, former head of Marsh’s Kroll Inc. security and investigations subsidiary, took over the top job at Marsh on Monday after Chairman and Chief Executive Jeffrey W. Greenberg resigned under pressure from Spitzer.

On Tuesday, Marsh unveiled a package of reforms, including the ban on contingent commissions, plus greater disclosure to customers about Marsh’s fees and commissions.

Under the reforms, the practice described in the Los Angeles office “is never going to be acceptable,” Cherkasky said Wednesday.

He said it was reasonable for insurers to want to balance their portfolios so that they were not overexposed to catastrophes, but Marsh’s loyalty was owed to the client, not the insurer.

Based on the initial results of the investigation, Cherkasky said Marsh wrote “an overwhelmingly high volume of AIG policies.”

However, he added, “in two or three instances, it surely looks like there was a problem.”