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A significant reduction-in-force has been underway for the past week at Marsh & McLennan Cos. with layoffs involving some of the biggest name brokerage executives, including the heads of the workers' compensation, higher education and casualty practices.

Joseph McSweeny, president for U.S./Canada at Marsh Inc., the insurance brokerage operations, said that this round of cutbacks is phase three of a process that has gone on for about two years. No further cutbacks of this scale are anticipated, he said. Reductions for Marsh during this round are around 3 percent of the total workforce of about 8,000 employees in the brokerage operations.

THE DEARLY DEPARTED

Among those departing are managing director Mark Noonan, who heads Marsh's workers' comp practice, and D. Jean Demchak, also a managing director, who heads the national higher education practice.

The workers' compensation practice is the only national practice at any major broker devoted solely to workers' compensation, with Marsh holding the largest number of workers' comp. accounts in the market. Also, the higher education practice represents more than 2,000 colleges and universities.

Also departing is Janis Berger, a managing director and head of casualty operations. There have been substantial cutbacks throughout the casualty lines. Chad Milton, national practice leader for media liability, has also left, along with Joanne Wankmiller, national senior care practice leader.

The media liability practice, based in Kansas City, has also been disbanded and its responsibilities moved to local offices.

Many of the brokers that have left or will be leaving have been named Power Broker^TM winners in the annual Risk & Insurance® award program.

The national higher education practice and national workers' compensation practice will remain even though the heads of both operations are departing along with many on the national staff. Those accounts will now be handled through Marsh's regional and local office system.

Clients, McSweeny explained, said they prefer to work with their local client-facing executives.

"Our national infrastructure was just too big for the size of the revenues generated," McSweeny said. "This is an effort to reduce the size and bring the structure closer to the clients."

BLOOD ON THE STREET

Clients have been critical of some of the changes, especially if they involve Marsh executives known and trusted for years. Many of those departing at the upper levels have decades of tenure at Marsh.

A risk manager at one of the large clients of the departing executives said, "There is blood on the street relative to the brokers," adding that there is stiff competition on price by the brokers in the marketplace today.

He said that the departure of this level of executives and expertise shows that Marsh "is treating insurance as if it were a commodity."

Also, he expects that most of those top execs leaving Marsh will probably quickly move to another competitor. Other clients expressed shock and surprise at the actions by Marsh.

CONTINUED COMMITMENT TO INDUSTRIES?

McSweeny said Marsh has no intention to reduce its commitment to its industry and specialty practices and expertise.

"I want to affirm our commitment to industries," he said, adding that there remains a "big commitment to talent within the industry groups." Indeed, he pointed out, Marsh intends to increase its investment in its industry-based knowledge management program that supports the industry practice groups.

McSweeny said the new organizational emphasis will continue to be innovative and will provide new products and services, now based even more by feedback from the clients who work with local Marsh offices.

"Our field operations were trapped, in a way," McSweeny said. Now, he said, we have an even better ability to serve clients and "unleash the power of the whole organization." Among other initiatives, McSweeny said, Marsh will invest in better technology, enabling the organization to improve its ability to share information.

The brokerage Marsh has been under increasing pressure to improve its margins. It has been making progress with margins reaching 21.6 percent in the first quarter of 2009 compared with 15.6 percent in the first quarter of 2008. Its biggest expense is personnel and personnel-related costs. Financial analysts have criticized Marsh for being slow to reduce its expenses, even as revenue dropped significantly five years ago when Marsh decided it would not take contingency commissions.

Marsh would not comment on the departures of specific individuals.

July 7, 2009

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