With Marsh this year assuming the leadership of the Top 50 brokers, UK chief executive Bruce Carnegie-Brown explains how the broker managed to get through the post-Spitzer trauma Elliot Lane reports.
Hindsight, as the saying goes, is a wonderful thing. Step into Dr Who's Tardis and reverse back only one year to reappear in the City and ask the first broker to cross your path: "Who is Eliot Spitzer?"
A blank face would be the response. It is a position many the market would like to return too. A time before the New York attorney general began following up an inquiry from the US drinks company Brown-Forman.
It alleged bid-rigging by broker Marsh on its insurance cover which led to a campaign that has now redefined and scrutinised every aspect of the broker/insurer relationship.
It is fair to conclude that Spitzer's impact on this industry in less than 12 months has been more fundamental than the introduction of the FSA's statutory regime.
No one understands this more than Marsh UK chief executive Bruce Carnegie-Brown, who only one year into his tenure at the top was hit by the scandal.
When asked what he would have changed to his strategy last year, with the luxury of hindsight, he lets out a hangdog laugh and says: "Not take market service agreements."
He, and many of his colleagues, have become the penitent men, a necessary but overall painful task because the majority of the problems began in the US which had a knock on effect globally.
This is why Marsh is top of the UK pile, much to the chagrin of the market, and a few Marsh clients to boot. The UK division during 2003 and 2004 did extremely well under the leadership of Carnegie-Brown and benefited from its regional focus on advice and risk management.
Marsh, during late 2003 and early 2004, began cutting into its closest rivals, Aon and Willis, based on a strategy of regional acquisitions and that clients were looking for the best price when the market was at its hardest.
"It is probably fair to say the 2004 movement of business through the big three brokers was high. Our strategy in Scotland was key to this when we took a number of teams from rival brokers to boost the regional focus.
"It is less obvious today as there are competitive prices and many clients are not retendering like they were during the hard market," says Carnegie-Brown.
Marsh strategy during 2004 was to try to offer a faster and more efficient service to clients during a difficult period, particularly during the worst elements of the employers' liability (EL) crisis. The broker created a specialist EL practice with the backing of CBI director-general Digby Jones to offer the best risk management, legal and broking advice.
"The employers' liability practice was formed when our clients became frustrated when trying to find cover. Though the capacity was there, it was a problem with price. At this stage we knew we had to find another way to package EL with other kinds of risk that were attractive to insurers so we could find better terms. That was our most high profile example of tackling client needs."
"We also had Finpro National rolling out London market facilities for large corporate clients into the regions especially directors' and officers' (D&O) and professional indemnity (PI) to be marketed to our existing clients in the mid-market sector where the two classes were finally linked," he said.
In June 2004, Marsh bought Rochester Kemp a relatively small broker in Manchester that specialised in contractors and SME business. This was the beginning of a regional strategy that has become de rigueur in the market. Marsh also bought Kroll Associates, the enormous and influential security and corporate intelligence company which employs former CIA and intelligence specialists.
"There has been conscious philosophy in Marsh since 2004 to give enormous value to clients so they get the right advice around mitigating risk.
"Halfway through the year, we acquired Kroll, though this does not impact on the figures in 2004, but the signals are there that this acquisition will add to our risk advisory capability which is where the real future of our growth lies.
"We also segmented our market so we are clearer about those activities that are value added to clients and those that are more about efficient execution. Historically, brokers have worked on both criteria but are not clear on whether the product is value added or makes the process more efficient.
"Clients of course expect both. But you must recognise which of those two add value and where you can offer better execution of risk management.
We knew that we must make them cheaper and more efficient, and we have started to deliver that process," he says.
Looking back over the year, Carnegie-Brown believes Marsh and the industry as a whole should have spent more time on contract certainty and cut back on the number of "centres so they are not multiple steps in the process".
"On reflection I wish we had started early on those processes."
When Carnegie-Brown first entered the market he regarded himself as "a novice" though his baptism of fire has led him to be more reflective.
"When we get through this period, particularly the FSA irrespective of Spitzer, the industry will begin to look at the opportunities it now has to change. And there is a lot of positive in that. It is not about the issue of how we get there, it is about the speed in which you get there."
Is Marsh through the pain? "I sum it up in three phases. Firstly we had to get through the regulatory and new business plan phase. It was very much a Spitzer and FSA driven directive. Second, was to relook at our business through January to April on the economic consequences of giving up contingent commissions. It was a lengthy process to find drivers of the business versus the cost structure which sadly led to job losses.
"The phase we are now in is getting out to clients and trying to implement those strategic changes such as disclosure and transparency. We must get to a stage where better service is given to clients."
Aligning clients service against a softening market, Carnegie-Brown says, will be the big challenge for the rest of the year. By 2006, the pain should have ended to such a degree that Marsh will begin acquiring brokers again, he predicts.
"It is a case of walking up the mountain a step at a time and then looking back on where and how we got there," he adds.
What Carnegie-Brown said on ...
On Spitzer: "It was a surprise the nature of the issues against us. The first was that in a small part of our operation there was bid-rigging which was a shock. It was not a shock that Spitzer had a negative view on contingent commissions, his view on that was well known.
"It was really aligning the two things that was extremely difficult for us and ultimately for the industry to resist. Contingent commissions might be viewed differently if there was no evidence of bid-rigging.
"The impact on the industry was shocking. However it was less of a shock here than it was in the US."
On new growth targets: "We don't want to give up any areas of our business we were in before. Even adjusting our rates for the soft market, encouragingly we are still running at the same level as last year."
On whether he regrets leaving banking for insurance: (Laughs) "No but it has clearly been a more difficult learning experience coming into insurance than I first imagined."
The rollercoaster ride through 2004
February 2004 - CBI director general Digby Jones backs Marsh's launch of an employers' liability (EL) practice to tackle the rising premiums suffered by UK business.
April 2004 - Marsh secures $170m worth of cancellation cover for the 2004 Athens Olympics.
June 2004 - Marsh confirms the acquisition of Manchester-based commercial broker Rochester Kemp. The broker specialises in casualty business and commercial schemes for SMEs and contractors.
July 2004 - Marsh boosts its drive in the regions by poaching 15 key staff from rival Aon. Of the 15, three directors from Aon's development and senior management team join Marsh. They include Aon's divisional managing director in Scotland, Mike Still, and head of its South East UK division, Peter Anscombe.
October 2004 - New York attorney general Eliot Spitzer launches inquiry into alleged illegal practices surrounding contingent commissions. Marsh and McLennan (MMC) chief executive Jeffery Greenberg stands down and is replaced by ex-Kroll chief Michael Cherkasky. The inquiry leads MMC to agree to pay $850m to reimburse brokerage commissions to clients. The payback scheme will take four years to complete.
By the end of the year, the UK operation cuts 750 jobs, revises its business plan to introduce more transparency and dismisses senior vice-president of its terrorism arm, Julian Taylor.