The top insurance brokerages in Los Angeles are reeling from job losses, turnover of senior management and a revision of their business models in the aftermath of fraud and bid-rigging investigations last year.
The biggest loser appears to be Marsh Inc.'s risk and insurance unit in Los Angeles, which has lost up to 75 employees, including many high-ranking executives. It was forced to make layoffs in November and April.
Willis Group Holdings Ltd. claims to be the local victor in poaching both clients and employees, primarily from Marsh. Willis lured top Marsh executives, including Paul Gibbs, the former managing director, and David Fuhrman, an 18-year Marsh veteran who is Willis' new chief executive in Los Angeles.
"Have we lost people? You bet we have," said Kris Davis, Marsh's new managing director in Los Angeles. "When you have a change at the very top of an organization, you are going to lose some people. You can't go through what we've gone through and not have some of that."
Davis said loyal customers stuck by when Marsh & McLennan Cos., the world's largest insurance brokerage firm, was accused in October of engaging in bid rigging and price fixing by New York Attorney General Eliot Spitzer.
The company admitted that it had steered property and casualty contracts to insurers in exchange for hefty incentive fees known as contingent commissions. Those fees have been voluntarily eliminated by the top four firms in the industry, forcing them to either restructure or look for new revenues in a competitive market.
Meanwhile, Willis Risk & Insurance Services in Los Angeles has had a 50 percent jump in revenues in July compared with a year ago. The office has grown its staff by 15 percent to 20 percent in the past year, according to Fuhrman, who won't give an exact headcount.
"We are definitely growing because it's fair to say that the crisis caused a lot of buyers to reassess their relationships," he said. "It's having a dramatic impact on our L.A. office and the fallout is not over."
Marsh long has been a dominant insurance broker, with 40 percent to 50 percent market share in Los Angeles. Willis and Arthur J. Gallagher & Co., the world's fourth-largest insurance broker, are the smallest of the top four firms. They appear to be the biggest local beneficiaries, though AON Corp., the largest insurance brokerage in Los Angeles, also claims to have harvested some of Marsh's defections.
"It's clear that Marsh has taken the heaviest damage from the whole scandal," said Donald Light, a senior analyst at research and consulting firm Celent Communications LLC in Boston. "Willis and Gallagher are emerging relatively stronger, but Marsh, even with all the departures, is a big established firm with highly competent and skilled people. The bad odor has gone away."
In January, Marsh agreed to an $850 million settlement to refund corporate clients who were overcharged as part of the alleged bid rigging. State and federal investigations are still ongoing.
A dozen people have pleaded guilty to mostly civil charges related to their participation in questionable pricing schemes, including five Marsh employees, three senior underwriters at Zurich American Insurance Co., two employees of American International Group Inc. and two executives of Ace Ltd. a big Bermuda insurer. AIG's former chairman and chief executive, 80-year-old Maurice R. "Hank" Greenberg, resigned in March.
Aon, which is based in Chicago, agreed in March to pay $190 million to settle fraud and anti-competitive practices in Connecticut, Illinois and New York. An investigation by California Insurance Commissioner John Garamendi is still under way.
Garamendi also is reviewing a $27 million settlement that Arthur J. Gallagher reached in May with state officials in Illinois, where Gallagher is based. That settlement included refunds to unnamed insurance companies in California. Garamendi has refused to sign off on the Illinois settlement until his investigation is completed, according to his spokeswoman, Carrie Beckstein.
Meanwhile, London-based Willis settled a probe by Spitzer and Minnesota's Attorney General, Mike Hatch, for $51 million.
Calls to local executives at Arthur J. Gallagher were not returned.
When Spitzer filed a lawsuit against Marsh in October 2004, claiming that the company fabricated bids to deceive clients into believing they were getting the lowest prices, he singled out Marsh's Los Angeles office.
Two pages of the original 31-page civil lawsuit claimed that Marsh, "on a virtually daily basis," inflated quotes by working with a Hartford Financial Services Group Inc. underwriter housed in the same office building on South Figueroa Street.
Hartford fired two of its Los Angeles underwriters in November, accusing them of "not fully cooperating" with Spitzer's investigation. A spokesman for Hartford Joseph Loparco declined further comment.
No charges have been filed against any Marsh employees in Los Angeles and it's unclear whether the Los Angeles office was ever a formal target of Spitzer's probe.
Brad Maione, a spokesman for Spitzer, would not discuss the lawsuit, claiming it "was rendered moot by the settlement."
Davis, Marsh's managing director, said there was an investigation into the L.A. office but "to what degree or how much or how little, I don't know. There have been indictments, we're not proud of them, but they were isolated in New York," he said.
Perhaps the biggest problem the industry faces is regaining the trust and confidence of its clients.
"You're dealing with an industry that employs millions of people and conducts hundreds of thousands of transactions every year, so the percentage of people who were engaging in the egregious part of the scandal bid rigging was relatively small," said Light. "There is not a pervasive sense that the industry is fundamentally broken. Bruised, yes broken, no."
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