Ethics

ETHICS

The insurance industry has been hit hard with the findings of unethical behavior. To be more specific bid rigging and contingent commissions are what have several insurance companies in trouble with the government. Top insurance companies, such as Marsh & McLennan, AIG, Aon, and A.J. Gallagher, among others are being investigated and even charged with unethical business practices. Eliot Spitzer, the New York Attorney General, has spear headed investigations into several companies where contingent commissions and bid-rigging were used to gain business for certain companies. The insurance companies would give the brokers, such as Marsh & McLennan, a kickback in the form of contingent commissions for placing business with them. Marsh & McLennan was also found to bid rig premium quotes in which they would submit inflated competing quotes so as to place insurance with their favored carrier meeting their quotas to qualify for the contingent commissions. This practice harms the customer as they wind up paying a higher premium for their policy than is necessary. This also puts money in the pockets of the companies involved with this illegal practice as well as giving a false view of the company's financial situations. This type of agency problem not only affects consumers it affects shareholders as the price of the firm's stock, due to deception and fraud, becomes elevated but once the discovery of the unethical practices was released stock prices for these companies plunged not to mention the quality of their reputation. The few companies that have caused this investigation have affected the whole insurance industry. Consumers are more cautious, investors are exercising their rights, other insurance companies are reviewing their practices, and the government is looking at ways to place better controls on ethical behavior.

Paul Winston, Editorial Director for Business Insurance, has stated that this investigation has met "the industry's reaction" with "a mix of submission, defensiveness and fear." Some companies have put an end to contingent commissions avoiding any future conflicts, while other companies have argued that there is nothing illegal about contingent commissions. They feel that a few people saw a way to take advantage of the situation for personal

gain and if you remove those companies or people making those decisions the problem can be solved. I feel that as long as there is a door that is inviting there will be people who will approach that door, open it, and enter even if it is unethical or illegal.

Michael Cherkasky, new CEO of March & McLennan, states, "I firmly believe the market place needs to say Ð''no' to contingent commissions." And Joe Plumeri, CEO of Willis, feels that contingent commissions should be abolished altogether and that "It's