Duperreault Calls for a Mix of Government and the Free Market
By CYRIL TUOHY, managing editor of Risk & Insurance®
Brian Duperreault, CEO of financial services firm Marsh & McLennan Cos., speaking on Wednesday, Oct. 28, said he favored a federal alternative to the state-based licensing requirements for insurance brokers.
Duperreault, who took over MMC nearly two years ago after a period of managerial turmoil following a price-fixing scandal, stopped short of saying exactly what kind of federal authority he would favor.
"The licensing costs alone just to keep my brokers is inordinately large," Duperreault said. "So we should have federal alternative."
As part of a package of financial reforms in the wake of the financial crisis, the Obama administration has proposed to create the Office of National Insurance within the U.S. Treasury to exert oversight on large, nationwide insurance carriers and brokers.
The past 18 months have been a test case for government intervention into the financial services sector. The Obama administration insists the spending has helped stabilize the economy. Critics of the billion-dollar bailouts have decried the waste of taxpayer funds.
Duperreault said the fact that insurance companies had by and large come out of the financial crisis in relatively good shape was a sign that regulation at the state level--even if inefficient--was at least effective.
Duperreault also said that living with an imperfect but viable state regulatory system was a better option than creating a new federal layer of bureaucracy, hastily assembled in the wake of crisis.
"I'd rather live with what we have than what might happen in a rush to judgment," he said.
Duperreault, the former CEO of ACE, delivered his comments as part of the keynote address at the 9th Annual Target Markets Program Administrators Association meeting in Phoenix.
Q&A WITH DUPERREAULT
In a wide-ranging question-and-answer session with TMPAA members following his comments, Duperreault also said that corporate boards were aware of the "populist anger" aimed at overpaid executives.
Duperreault, who took in $13.31 million in total compensation in 2008, noted that boards are often in a tough spot as "there are consequences if you do compensation wrong."
"There will always be some excess," Duperreault also said, "but they'll suffer their own consequences." Duperreault cautioned that in the end it is better to let the market--not the government--decide who gets punished and who gets rewarded.
The Obama administration earlier in October announced it would slash the bonuses of banking, insurance and automobile executives whose companies had accepted taxpayer funds to help them get through the financial crisis.
Asked about contingent commissions, payments made by carriers to brokers based on business volume, Duperreault said the playing field was still unfair. Though Marsh agreed to end the practice as part of an $850 million settlement in a price-fixing scandal with former New York Attorney General Eliot Spitzer, hundreds of brokers still accept the payments.
Because brokers survive through multiple earnings streams, both from the insured and the carrier, conflicts of interest are unavoidable. The best--and only--answer is simply to disclose the source of broker income.
"The best answer is disclosure, complete honesty: here's how we get paid, here's where we're getting money from the other guy," said Duperreault. "I don't know that there's any other way around it."
Buyers who do business with Marsh, said Duperreault, receive letters telling them where all the commissions are coming. Buyers are then asked to sign the letters acknowledging the commission disclosures.
November 2, 2009
Copyright 2009© LRP Publications