Spitzer Charges Marsh & McLennan in Insurance Racket
10/15/04 - 08:07 AM EDT
Matthew Goldstein
Spitzer's pursuit of Marsh and AIG creates an odd family twist. Jeffrey Greenberg, Marsh's chairman and CEO, is the son of AIG Chairman and CEO Maurice "Hank" Greenberg.
Evan Greenberg, CEO of ACE, is another son of Maurice Greenberg. Spitzer's investigation into the insurance industry has been going on for much of the year and became public in April when his office served subpoenas on a number of firms, including Marsh, Aon, Willis Group(WSH Quote - Cramer on WSH - Stock Picks) and Aetna(AET Quote - Cramer on AET - Stock Picks). The Spitzer allegations are likely to cause much consternation in the insurance business. Some contend the kinds of compensation deals Spitzer has been investigating are routine in the business and not secret. Spitzer, however, contends the deals are kickbacks paid by the insurers to the brokers to peddle their products. Analysts at J.P. Morgan Chase estimate that such deals account for 5% of brokerage revenues and nearly 20% of earnings year to date in the insurance brokerage sector. But Spitzer contends Marsh and other insurance firms have not told the public the whole truth about these agreements. He says the agreements are nothing more than a reward from the insurers for steering business to them and a violation of Marsh's fiduciary duty to negotiate the best deal for its customers. Earlier this year, the Washington Legal Foundation, a nonprofit public interest group, urged state officials in New York and California to investigate compensation deals in the insurance industry. In a February press release, the foundation said compensation deals can create a conflict of interest between insurance brokers and lead them to do what's best for them and not necessarily in their client's interest. Spitzer's office, as has become customary in investigatory cases, is using some of Marsh's own internal emails to build the case against the firm. In one of the more damaging emails, a Marsh executive says some agreements with the insurers "are better than others" because they make bigger payments. The email writer goes on to advise a Marsh employee to be on the lookout for advice about "who we are steering business to and who we are steering business from."
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