Well before New York State Attorney General Eliot Spitzer's allegations last month of serious wrongdoing at Marsh & McLennan Cos. there were indications of turmoil within the ranks as several groups of brokers bolted to rival firms.

As recently as August, broker groups from San Diego to Denver had been leaving the world's largest insurance brokerage in what industry sources say were a series of notable defections.

It's not possible to pin all the departures on the questionable practices at Marsh that were flagged by Spitzer. But at least some have been linked to one practice that has drawn his attention: the funneling of business from local offices to the company's New York headquarters, where it was handled by its Global Broking unit.

That practice took the placement of business with carrier underwriters out of the hands of local brokers who dealt with clients face-to-face, something that increasingly irked brokers, said one who left Marsh for a rival firm.

"You promise your clients you will do everything you can for them," said the broker, who asked his identity not be disclosed. "It's pretty hard to do that when the process is to go to this separate unit and you lose control."

Notable defections began in September 2002 with the departure of almost a dozen brokers from a San Diego Marsh office to a new office that Lockton Cos. Inc. established in the area. This August, nearly a dozen brokers left Marsh's Newport Beach office and helped set up an Irvine presence for McGriff Seibels & Williams, a Birmingham, Ala.-based brokerage seeking to expand on the West Coast.

In between, Willis Group Holdings, the large London-based multinational brokerage giant, took groups of Marsh brokers in the Denver and San Francisco markets.

Los Angeles was spared major defections, sources said, likely because the office has a large number of senior brokers who would be less likely to make such a move late in their career.
(Last week, two employees of Harford Financial Services Group Inc., accused by Spitzer of bid-rigging with Marsh brokers in L.A., were fired by the insurer.)

Brian Sullivan, an insurance industry expert and editor of Property Insurance Report, cautioned against reading too much into the departures, noting that insurance brokers often change employers. Even so, he said, the string of defections was notable.

"That's a long list," he said. "It's not like a bunch of new (managers) came in and changed the way they operated."

The departures were also notable because they involved top local managers, as well as specialized producers.

In San Diego, James E. Skeen Jr. had been a 16-year veteran of Marsh, including four years as senior vice president, when he was appointed by Lockton to be chief executive of its new office, which now has 23 employees, including 10 who had worked at Marsh.

Skeen declined to comment on the circumstances of his departure, only to note that the office included brokers from other firms and that he felt sorry for his former colleagues. "It's a tough time, and I feel very badly for a lot of folks over there," he said.

However, other brokers who left Marsh said that the Global Broking unit, which was started in the mid-1990s, began to grate on senior management in regional offices over the last year or two as more business was funneled through it.

Don Picard worked for Johnson & Higgins, a brokerage that Marsh bought in 1997, and left Marsh last year to form a Denver office of brokerage Palmer & Cay Inc.

Picard, who was ultimately joined by four other Marsh brokers, said he preferred being involved in the brokerage process from start to finish, something Global Broking did not allow.

"My preference would be as an individual to have the ability to place the insurance directly into the market. This opportunity allowed me to do that," said Picard, now a managing partner at Palmer & Cay.

Last year, Willis hired five members of Marsh's Executive Risk Practice Group in San Francisco, a highly technical unit that placed policies such as directors' and officers' insurance. Willis also recruited three members of Marsh's executive risk group in Denver last year.

The suit filed by Spitzer on Oct. 14 alleges that the Global Broking arrangement contributed to problems at Marsh by centralizing power and authority in the New York office.

That centralization then allowed Marsh to funnel business to certain carriers in exchange for back-end or contingent commissions, based on the volume of business placed, according to the lawsuit. This, the suit added, interfered with Marsh's duty to protect the best interests of its clients.

Among the Marsh product lines that the Global Broking unit had authority over was FinPro, or Financial Products, the suit states the same lines that the departing executive groups in Denver and San Francisco had handled. A factor in these departures was likely the group's loss of control of accounts to the Global Broking unit in New York, said another Los Angeles broker.

John Grotts, chief executive of Willis' San Francisco office, declined to comment on the recruitment last year of Marsh brokers, which included Brenda Shelly, an 18-year industry veteran who would be appointed Western Region Leader for Willis' executive risk practice group.

A spokeswoman for Marsh said it would be wrong to read too much into the departures of the brokers, even as she acknowledged that she was aware of some of them.

"You have people who are switching between firms all the time," said Daina Petronis, the spokeswoman for Marsh's Los Angeles office. "We have good people so you have other companies who come after our people with very aggressive and attractive offers."

A former top Marsh official who is now retired also dismissed the departures as inconsequential. He defended the Global Broking unit as an effective way to leverage Marsh's expertise and heft.

"Marsh used a real team approach in order to place business, but if you are a hotshot or a gunslinger you want to take all the credit," said the former executive. "It wasn't worth it to Marsh to keep them."

Last week, Marsh announced it was laying off 5 percent, or about 3,000, of its 43,000 worldwide employees including 38 in Los Angeles as a result of its legal troubles, which cut its stock price in half. Marsh is expected to pay at least $232 million just to reach a settlement with Spitzer.

Rival brokers in Los Angeles say the market is flooded with applications from Marsh brokers looking to get out of the firm, and now Marsh is doing it all it can to retain its best talent.

Last week, the company announced that to stem any unwanted personnel losses it was "developing compensation programs to retain, motivate and reward employees."

Petronis said the Los Angeles office has so far lost no brokers since the scandal surfaced in October.

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