Marsh: why the axe?

Last month the Society announced that Marsh, the insurance brokers who (or whose predecessors) have handled the Master Policy since its inception, had lost the contract following a retendering exercise. In their place, Lockton will administer and broker the policy from 1 January 2017.

This prompted a letter to the Journal from David Adie of Adie Hunter, Glasgow, who wrote: “I was shocked to discover that the brokers who for many years have administered the Master Policy, namely Marsh, have been dumped. I think ‘dumped’ is perhaps appropriate. The brokers who are now going to manage it I have never heard of. A great number of solicitors I speak to have not been aware of the change and have never heard of the new brokers either.

“Could someone please justify this change? Why are we ‘dumping’ 40 years of experience from Marsh? I foresee the demise of the Master Policy in exchange for some short term gain and perhaps respite from increasing premiums for a few years. The whole matter is going to come home to roost and is yet another nail in the coffin of the independent Scottish legal profession.

“Explanations please, although I suspect the usual platitudes will be trotted out.”

Importance of competition

Alistair Morris, convener of the Society’s Insurance Committee, replies:

“The factual position with regard to the brokers to the Society’s Master Policy is as follows. The Society’s Insurance Committee overhauled the governance arrangements for the Master Policy at the end of the 1990s. One of the major changes was the introduction of a full commercial tender for the administration and brokerage of the Master Policy from 1 November 1999. This tender is conducted by the Insurance Committee of which I am the current convener.

“Since 1999 there will have been four tenders, including the most recently completed tender which has resulted in the appointment of Lockton as administrators and brokers to the Master Policy for the five-year contract period from 1 January 2017 to 31 December 2021. The previous three tenders were won by Marsh. Prior to the first tender in 1999 there was no formal competitive tendering process for the brokerage to the Master Policy.

“The Master Policy was formally investigated by the now defunct Office of Fair Trading over 2003-04. One of the reasons why the Master Policy was given a clean bill of health by the OFT was due to the existence of the full tendering process for the brokerage contract.

“The current tender took nearly a year to complete, as it commenced in June 2015 with a final decision being taken by Council at its April 2016 meeting. This tender attracted the largest number of participants – six – of all the tenders to date. The tender was conducted in full compliance with the Society’s principles for tenders, as approved by the Society’s independent Audit Committee.

Deciding factors

“Lockton won the tender over their five commercial rivals. The tender panel agreed that Lockton were ahead of their rivals in the areas of online administration, broking plan, long-term planning for the sustainability of the Master Policy, pricing, risk management and better fit with the Society’s five-year strategic plan.

“Lockton Companies Inc is the world’s largest privately held insurance brokerage firm, providing insurance, risk management and employee benefit solutions. It is headquartered in Kansas City, Missouri, USA. The company’s UK headquarters is in London and it has a significant office in Edinburgh. Lockton launched its UK operations in 2007. The UK division operates as an LLP. From the year to 30 April 2015 the LLP revenue was £129.6 million. Profit for the year amounts to £47.7 million.

Seamless transition expected

“The tender for the brokerage for 2017-21 was announced in the Society’s Annual Plan 2014-15, published in October 2014.

“The recommendation of the tender panel for the appointment of Lockton was unanimously endorsed by the Society’s board, Insurance Committee and Council.

“Our private practice members have dealt with colleagues at Marsh for many, many years and built up a trusted relationship with them. It is as a result of their great service and professionalism and the equal professionalism shown by the Lockton team that we are confident that there will be effort on both sides to make the transition as seamless as possible. We expect our new brokers to deliver a first-class service when they pick up the reins in 2017.”