Price Increases On The Way, Marsh Warns

CEO Cherkasky sees market turning, but how sharply still remains to be seen

While it remains unclear how sharply insurance prices will rise, it appears inevitable there will be broad-based increases, the chief executive of the world's largest insurance brokerage firm warned.

Michael G. Cherkasky, president and CEO of Marsh & McLennan Companies, said it remains an open question what impact there will be on business from this past season's hurricanes. “I think that even on Dec. 6 it is still a premature question. It is remarkable how slow the markets have been to give us clarity on pricing,” he said in remarks broadcast over the Internet from the Goldman Sachs Financial Services CEO Conference.

He said the reinsurance segment of the market is providing a better idea of what direction pricing will go, but primary insurers have not been as clear.

“Our job is to do the best we can for our clients,” he said. “The reality is that there [are] going to be increases, and I think they will be pretty broad-based. We have to wait to get into the January renewals, to get into January and February, to really have a good idea what impact [the rate increases] are going to have.”

Further impact on MMC's earnings will come from discussions with clients over whether compensation will be fee-based or commission-based, he continued. “We have a large piece of our business which is oriented to commissions, and we would expect that for a major segment of the market, there will be price [increases],” said Mr. Cherkasky.

During his talk, Mr. Cherkasky emphasized the need for MMC to return shareholder value and improve the company's earnings, which he said have been below average.

Historically, the company has operated in silos and not collectively, he continued. MMC is in the process of changing that. He said the insurance and consulting units would begin to operate more collectively and add services for customers to improve relationships. “We are a professional services firm that gives advice and solutions,” he said. “That is going to be our focus–to operate as one company.”

However, he said Putnam would operate as a holding company. Because of the nature of MMC's investment arm, and the conflicts of interest that arose with regulators, Putnam will not be integrated with Marsh and Mercer consulting, he explained. “What we need to do is simple. The execution is the challenge,” Mr. Cherkasky observed.

Concerning Marsh's stance on retention of business and employees, he said Marsh continues to exit unprofitable lines, representing about 1 percent of its book, but its retention of profitable business is improving. He said there will be a marked improvement in business retention in 2006.

Mr. Cherkasky said the firm would not overpay to keep employees, and that under the team concept he is advancing there are excellent individuals to service the business.

He added that the company has not lost business because of individuals leaving. However, he acknowledged that there was a “scary” period in January when there was a high attrition rate, but the figure is now at historical levels. “I will not play the game of matching everyone's salary,” he said.

“It is remarkable how slow the markets have been to give us clarity on pricing…The reality is that there [are] going to be increases, and I think they will be pretty broad-based.”

Michael G. Cherkasky, President & CEO

Marsh & McLennan Companies

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
  • Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.