After announcing a settlement with New York Attorney General Eliot Spitzer that would have the Marsh brokerage repay clients $850 million, Michael Cherkasky, president and CEO of the brokers parent, released a letter of apology.

“We have always stood for delivering exceptional service, creating innovative solutions, and being a professional and ethical advocate on our clients' behalf,” he wrote. “Unfortunately, certain of our people acted improperly when placing insurance for some of our clients in the United States. Their behavior was unacceptable, and we deeply regret their actions.”

The letter went on to summarize the corrective measures being put into place, which include putting an end to contingency commissions and appointing a chief compliance officer.

Next, it was Aon Chairman and CEO Pat Ryans turn. After his deal with Mr. Spitzer and friends was revealed, he said contingent commission agreements were employed that “created conflicts of interestI deeply regret we took advantage of those conflicts. Such conduct was improper and I apologize for it.”

Like his counterpart at Marsh, Mr. Ryan was quick to add that any improper behavior was limited to a small group. “I don't believe these allegations are indicative of common Aon practice,” he said. “Forty-eight thousand employees across the globe work hard every day to meet and exceed the expectations of our clients. I would be remiss if I did not recognize their commitment and their contribution.”

For legal reasons, these statements of regret and vows to do better were as far as the two brokerages could go without inviting further litigation. The relentless Mr. Spitzer did not split hairs and was gracious in victory.

When Marsh announced its settlement, he called it “wonderful in many respects,” noting that the broker had adopted a new business model and forsaken contingency fee deals that created conflicts of interest and spurred bid-rigging. With Aon, he said that to its credit, “the company has acknowledged the problems, has agreed to compensate policyholders, and has adopted reforms that will provide greater accountability”

In some respects, Marsh and Aon got off easy. After all, Mr. Ryan noted that his firms reimbursements to policyholders are expected to be tax deductible. In addition, the amounts paid, while not exactly petty cash, wont come close to breaking either of the mammoth brokerages.

However, the dropping of contingency fees is not insignificant. With a soft market looming ever larger and competition on the rise, the bottom lines of these two mega-brokers may suffer for quite some time to come.

The apologies are also significant in that they show both firms have a long road to travel to regain their most valuable assetthe trust of clients. This could end up costing them far more than any cash settlement if risk managers refuse to accept their apologies and move their accounts to competing brokerages.

Sam Friedman

Editor-In-Chief

“The apologies are significant in that they show both Marsh and Aon have a long road to travel to regain their most valuable assetthe trust of clients.”

Reproduced from National Underwriter Edition, March 10, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.