NEW YORK--Willis Group Holdings Ltd. reached settlements with New York and Minnesota officials Friday relating to its compensation practices.
Willis North America Inc., the North American brokerage arm of London-based Willis, will pay $50 million in restitution to policyholders and adopt a new business model to resolve concerns about fraud and anti-competitive practices raised by New York Attorney General Eliot Spitzer and Acting New York State Insurance Superintendent Howard Mills.
The settlement is modeled after earlier agreements reached with Marsh & McLennan Cos. Inc. and Aon Corp., the New York officials said.MMC agreed in January to pay $850 million and reform its business model to settle fraud and bid-rigging charges, and Aon last month agreed to pay $190 million and reform its practices to settle charges of fraud and anti-competitive practices.
Unlike MMC and Aon, however, Willis did not face a civil suit from Mr. Spitzer's office and did not issue an apology as part of its settlement.
"We welcome the attorney general's conclusion that it was not appropriate to file a complaint against our company based on the findings of his investigation," Joe Plumeri, Willis' chairman and chief executive officer, said in a company statement.
"Willis moved quickly to remedy its problems," Mr. Spitzer said in a statement. "Its actions will help bring about greater transparency and accountability in the insurance industry. Willis Chairman Joseph Plumeri has demonstrated admirable leadership in spearheading Willis' response to the issues raised in our investigation and in implementing reforms at the company."
The New York investigation into Willis, which began last spring as part of a broad probe of broker compensation practices, revealed internal communications about efforts to maximize Willis' revenue and insurers' revenues without regard to the interest of clients, the officials said in a joint statement.
In their statement, the officials cite an October 2003 e-mail to Willis' regional marketing officers titled "Contingent Income Push" from a senior Willis executive. That message reads: "I need you to drive this initiative--I want to see you directing the flow of business to these companies," and then names the insurers with which Willis had contingent fee agreements, the statement notes.
Among the reforms Willis will adopt is a new policy whereby the brokerage will accept and fully disclose one payment for an insurance contract at the time of placement.
Simultaneously, Willis agreed to settle the investigation into its compensation practices by Minnesota Attorney General Mike Hatch.
Last month, Mr. Hatch hinted that Willis may have engaged in fraud and deception in violation of the state's consumer protection laws in court documents seeking to compel the company to provide information relating to his investigation into contingent commissions (BI, March 14).Under the agreement, Willis will pay $1 million in restitution to its Minnesota clients.
Willis did not admit to wrongdoing or liability in connection with the Minnesota agreement.
"Willis is pleased to have resolved this investigation with Attorney General Hatch and to put it behind our company," Mr. Plumeri said in a separate statement on the Minnesota investigation. "Through his direct personal involvement, Attorney General Hatch brought to our attention a number of concerns, which we have addressed. Willis was the first major broker in the industry to end the use of contingents. We believe that all insurance brokers and insurers should relinquish the use of contingent commissions," he said.
Willis collected $71 million in contingent commissions in 2004, prior to its decision to cease the practice.
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