Marsh hit by profits slump after fees scandal

Marsh & McLennan, which was caught up in the commissions scandal that rocked the US insurance market last year, said yesterday that its profit fell 70 per cent in the first quarter after it abandoned controversial fees charged to customers.

Marsh & McLennan, which was caught up in the commissions scandal that rocked the US insurance market last year, said yesterday that its profit fell 70 per cent in the first quarter after it abandoned controversial fees charged to customers.

The New York-based company, the world's largest insurance broker, agreed in January to pay $850m (£450m) to settle a lawsuit by the New York attorney general Eliot Spitzer, which accused it of rigging bids and fixing prices, and steering business to insurers that paid higher fees to the broker.

Marsh has abandoned lucrative "contingency commissions", where it receives a fee for steering business to an insurer based on the volume and type of cover.

As a result, its net income fell to $134m from $446m a year ago. Marsh also took charges for redundancy payments and for extra regulatory compliance in its attempt to put the investigation by Mr Spitzer behind it.

Michael Cherkasky, Marsh's chief executive, said the broker was succeeding in its plan "to simplify its management structure, improve efficiencies and account profitability and increase transparency". He added: "These changes should enable Marsh to deliver profitable growth and margin expansion next year."

Contingency commissions are not illegal, but critics say they can motivate brokers to direct business to insurers paying the highest fees, rather than to those offering the client the best deal. Marsh has also admitted that a small number of employees solicited fake bids, which deceived its customers into thinking that true competition had taken place.

Mr Spitzer's lawsuit also named American International Group, the number one insurer in the world. A separate inquiry into AIG is continuing, with the spotlight increasingly turning to what role its former chief executive Hank Greenberg played in entering into reinsurance deals to bolster the company's balance sheet. AIG said at the weekend it would restate its accounts, reducing its value by $2.7bn.

Marsh is cutting 5,500 jobs, or about 9 per cent of its workforce, and earlier this year halved its stock dividend.